<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
[X] Definitive Proxy Statement by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
NATURAL ALTERNATIVES INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Limited Partnership Interests
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
NATURAL ALTERNATIVES INTERNATIONAL, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 6, 1999
----------------
An Annual Meeting of Stockholders of Natural Alternatives International,
Inc., a Delaware corporation (the "Company"), will be held at the Quails Inn,
1035 La Bonita Drive, San Marcos, California 92069 on Monday, December 6, 1999,
at 1:00 p.m., local time, for the following purposes:
1. Election of two (2) directors of the Company in Class II to serve
until the next Meeting of Stockholders held to elect directors in Class II (and
until the election and qualification of their successors).
2. Election of one (1) director of the Company in Class III to serve
until the next Meeting of Stockholders held to elect directors in Class III (and
until the election and qualification of his successor).
3. Stockholders' approval of the adoption of the Natural Alternatives
International, Inc. 1999 Omnibus Equity Incentive Plan, and the reservation of
500,000 shares of common stock of the Company for issuance pursuant to the
Natural Alternatives International, Inc. 1999 Omnibus Equity Incentive Plan.
4. Stockholders' approval of the adoption of the Natural Alternatives
International, Inc. 1999 Employee Stock Purchase Plan, and the reservation of
150,000 shares of common stock of the Company for issuance pursuant to the
Natural Alternatives International, Inc. 1999 Employee Stock Purchase Plan.
5. Confirmation of KPMG LLP as the Company's independent auditors for
the fiscal year ending June 30, 2000.
6. Transaction of such other business as may properly come before the
Annual Meeting of Stockholders or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on October 20,
1999 as the record date for determination of stockholders entitled to notice of
and to vote at the Annual Meeting of Stockholders or any adjournment or
postponement thereof.
All stockholders are cordially invited to attend the Annual Meeting of
Stockholders in person. REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE MEETING,
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
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<PAGE> 3
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. LeDoux
Secretary
San Marcos, California
October 29, 1999
2
<PAGE> 4
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 Monday, December 6, 1999 at 1:00 p.m., local time, or at any
adjournment or postponement thereof. The Annual Meeting will be held at the
Quails Inn, 1035 La Bonita Drive, San Marcos, California 92069. This Proxy
Statement and the accompanying Proxy and annual report are first being mailed to
stockholders on or about October 29, 1999.
VOTING
Only stockholders of record at the close of business on October 20, 1999
will be entitled to vote at the Annual Meeting. On September 22, 1999, there
were approximately 5,759,875 shares of Common Stock outstanding. The Company is
incorporated in Delaware and is not required by Delaware corporation law or its
Certificate of Incorporation to permit cumulative voting in the election of
directors.
Each share of Common Stock will have one vote on each matter properly
presented and submitted to a vote at the Annual Meeting. 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 each matter, except
for the election of directors, who are elected by a plurality of the votes of
the shares present in person or by Proxy. There are no rights which will accrue
to stockholders dissenting in any matter known to the Company to be raised at
the Annual Meeting. Abstentions with respect to any matter are treated as shares
present or represented and entitled to vote on that matter and thus have the
same effect as negative votes. If shares are not voted by the broker who is the
record holder of the shares, or if shares are not voted in other circumstances
in which Proxy authority is defective or has been withheld with respect to any
matter, these non-voted shares are not deemed to be present or represented for
purposes of determining whether stockholder approval of that matter has been
obtained.
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 directions
noted thereon, and if no such directions are indicated, the shares it represents
will be voted in favor of the proposals set forth in the notice attached hereto.
Any person giving a Proxy in the form accompanying this statement has the power
to revoke it any time before its exercise by filing with the Secretary of the
Company at the Company's principal executive office, 1185 Linda Vista Drive, San
Marcos, California 92069, an instrument of revocation or a duly executed Proxy
bearing a later date, or by attending the Annual Meeting and voting in person.
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SOLICITATION
The Company is soliciting the enclosed Proxy and will bear the entire
cost of the solicitation of Proxies, including the preparation, assembly,
printing and mailing of this Proxy Statement, the Proxy and any additional
material furnished to stockholders. Copies of solicitation material will be
furnished to brokerage houses, fiduciaries and custodians holding shares in
their names that are beneficially owned by others to forward to such beneficial
owners. In addition, the Company may reimburse such persons for their cost of
forwarding the solicitation material to such beneficial owners. The Company has
retained ChaseMellon Shareholder Services to assist in the solicitation of
Proxies. The solicitation of Proxies by mail may be supplemented by telephone,
telegram and/or personal solicitation by directors, 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.
PROPOSAL 1
ELECTION OF CLASS II DIRECTORS
The two Class II directors to be elected at the Annual Meeting will be
elected, to hold office for the remaining two (2) years until the next meeting
of stockholders held to elect directors in Class II, and until his or her
successor is elected and has qualified, or until his or her death, resignation
or removal. The nominees for director are members of the present Board of
Directors (the "Board") in Class II thereof, and were elected by the
stockholders at the Company's 1996 annual meeting of stockholders. The nominees
are serving a term of office scheduled to expire with the 1998 annual meeting
and the election and qualification of their successors. No annual meeting was
held in 1998. Therefore, the nominees are being elected for the remaining two
(2) years of the three (3) year term which was to have commenced in 1998. Class
III directors are being elected pursuant to Proposal 2 below. Class I directors
of the Company will continue in office for their existing terms, which will
expire with the 2000 annual meeting and the election and qualification of their
successors.
The two (2) candidates receiving the highest number of affirmative votes
cast at the Annual Meeting shall be elected as directors of the Company in Class
II. Unless authority to do so is otherwise withheld, it is intended that the
shares represented by the enclosed Proxy will be voted for the election of Marie
A. LeDoux and Lee G. Weldon as Class II directors. The nominees for election
have agreed to serve if elected. In the event any of such nominees becomes
unavailable or refuses to serve as a director (an event that is not
anticipated), the shares represented by the enclosed Proxy will be voted for the
election of the balance of those named and such other nominee as the Board may
select.
PROPOSAL 2
ELECTION OF CLASS III DIRECTOR
The one (1) Class III director to be elected at the Annual Meeting will
be elected to hold office until the Annual Meeting held in 2002 and until his
successor is elected and has qualified, or until death, resignation or removal.
The nominee for director is a member of the Board, appointed to a vacant seat by
the Board during fiscal 1999. The one (1) candidate who receives the highest
number of affirmative votes cast at the Annual Meeting shall be elected as a
director of the Company in Class III. Class I directors will continue in office
for their existing terms, which will expire with the 2000 annual meeting and the
election and qualification of their successors. Class II directors are being
elected pursuant to Proposal 1 above.
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INFORMATION ABOUT NOMINEES AND DIRECTORS
Set forth below is information regarding the two nominees for election as
a director in Class II, the one nominee for election as a director in Class III,
and the continuing directors for Class I, including information furnished by
them as to their principal occupations at present and for the last five years,
certain directorships held by each, their age as of October 20, 1999, and the
year in which each became a director of the Company. Except for Marie A. LeDoux
and Mark A. LeDoux, who are mother and son, respectively, there are no family
relationships among any of the directors or executive officers of the Company.
<TABLE>
<CAPTION>
Name Age
- ---- ---
<S> <C>
CLASS II
Marie A. LeDoux.............................................................. 83
</TABLE>
Mrs. LeDoux is Secretary and Chairperson of the Board of the Company. She
has been a director of the Company since August 1986, and has also been
Chairperson and Secretary since that time. Mrs. LeDoux was also the
Chairperson/Advisor of the Company's predecessor from its formation until 1986.
She has forty years of experience in the area of nutrition. In 1978, Mrs. LeDoux
was awarded an Honorary Fellowship in the International Academy of Preventive
Medicine. In 1981, she received an Honorary Ph.D. in Humanities from the
Heritage Institute. Mrs. LeDoux is the mother of Mark A. LeDoux, who is the
Chief Executive Officer, President, Assistant Treasurer and a Director of the
Company. For the last eighteen years, Mrs. LeDoux has been the President of Play
N' Talk International, a company which is in the business of preparing
instructional materials for children's reading programs.
<TABLE>
<S> <C>
Lee G. Weldon................................................................ 60
</TABLE>
Mr. Weldon has been a director of the Company since June of 1992. He was
the Chief Executive Officer of Kal Healthway, Inc., a food supplement
distributor, from 1978 to 1995, and was also the Chairman from 1985 to 1995. Mr.
Weldon graduated from UCLA and obtained a Bachelor of Science in Business
Administration in 1963. Mr. Weldon became a member of Young President's
Organization ("YPO") in 1982, and since 1990 he has been a graduate member of
YPO.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE CLASS II
NOMINEES LISTED ABOVE.
CLASS III
<TABLE>
<S> <C>
J. Scott Schmidt............................................................. 62
</TABLE>
Mr. Schmidt became a director of the Company in January 1999. Mr. Schmidt
has been a Management Consultant since 1995, specializing in communications,
marketing, and mergers and acquisitions. He spent 27 years with Tribune Company
of Chicago, eventually serving as Vice President/News and Information for the
entire corporation. From 1992 to 1994, he was Chief Executive Officer of
Thompson Newspapers Corporation. From 1991 to 1992 Mr. Schmidt was the
President, Publisher and Partner of American Collegiate Network, Inc. which was
the publisher of the National College Newspaper. Mr. Schmidt was also the
President and Chief Executive Officer of Hilton/Schmidt, Inc. which specialized
in consulting for media companies in the areas of editorial, sales, marketing
and acquisitions. Mr. Schmidt attended Bradley University and Northwestern
University.
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<PAGE> 7
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE CLASS III
NOMINEE LISTED ABOVE.
CLASS I
<TABLE>
<S> <C>
Mark A. LeDoux............................................................... 45
</TABLE>
Mr. LeDoux is Chief Executive Officer, President, Assistant Treasurer and
a Director of the Company. He was a director, the President and Chief Executive
Officer of Natural Alternatives, Inc., the predecessor corporation, from its
formation in 1981 until the 1986 merger into the Company. Mr. LeDoux has been a
director and Chief Executive Officer of the Company since the August 1986 merger
of the predecessor corporation into the Company, which continued the business
and operations of Natural Alternatives, Inc. He was appointed President of the
Company in 1999, an office he previously held from August 1986 to December 1996.
From 1976 to 1980, Mr. LeDoux held the position of Executive Vice President and
Chief Operating Officer of Kovac Laboratories, a company which was engaged in
the business of manufacturing nutritional supplements. He attended the
University of Oklahoma and graduated Cum Laude with a Bachelor of Arts and
Letters in 1975. Mr. LeDoux graduated from Western State University, College of
Law in 1979, with a Juris Doctorate. Mr. LeDoux is the son of Marie A. LeDoux,
who is the Secretary and Chairperson of the Board of Directors.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended June 30, 1999, the Board held five (5)
regular meetings and six (6) special meetings. All directors then in office,
excluding William P. Spencer, attended at least 75% of the aggregate number of
meetings of the Board and of the Committees on which such directors served
during the fiscal year ended June 30, 1999. Mr. Spencer attended one of the
meetings of the Board.
All members of the Board hold office until the next Annual Meeting of
stockholders following expiration of their respective terms of office or the
election and qualification of their successors. All directors who are not also
employees or officers of the Company receive a minimum annual fee of $5,000 for
agreeing to act as a director of the Company, plus a fee of $1,000 for each
Board meeting personally attended. Executive officers serve at the discretion of
the Board. The Board has an Audit Committee and a Human Resources Committee. The
Board formerly had a Compensation Committee and does not have a Nominating
Committee. On June 9, 1999, the Compensation Committee was renamed the Human
Resources Committee by resolution of the Board of Directors of the Company.
References herein to the Human Resources Committee are intended to include the
Compensation Committee to the extent such reference encompasses any period prior
to June 9, 1999.
The Audit Committee is composed of directors who are not also employees
or officers of the Company. The Audit Committee recommends a firm of certified
public accountants to be appointed by the Board, 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 management and the independent auditors
the Company's interim and year-end operating 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 independence of the auditors. The Audit
Committee currently consists of directors Kellas, Weldon and Schmidt. Mr.
Schmidt was appointed to the Audit Committee by the Board of Directors of the
Company on March 11, 1999 and has served since that date. During fiscal year
1999, the Audit Committee met one time.
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<PAGE> 8
The Human Resources Committee establishes and recommends to the Board
rates of salary, bonuses, retirement and other compensation for all directors
and officers of the Company and for such other personnel as the Board may
designate. The Human Resources Committee currently consists of directors Kellas,
Weldon and Schmidt. Dr. Kellas, Mr. Weldon and Mr. Schmidt are directors and are
not officers or employees of the Company or any of its subsidiaries. Mr. Schmidt
was appointed to the Human Resources Committee by the Board of Directors of the
Company on March 11, 1999 and has served since that time. During the fiscal year
1999, the Human Resources Committee met five times.
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 years June 30, by each of the named
executive officers:
SUMMARY COMPENSATION TABLE
COLUMNS ANNUAL COMPENSATION
<TABLE>
<CAPTION>
All Other
Name and Principal Position Year Salary Bonus Other(1) Compensation(2)
- --------------------------- ---- -------- ------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Mark A. LeDoux 1999 $208,000 $ 609 $345,781 $27,756
President, Chief Executive 1998 208,000 304 40,270 27,842
Officer, Assistant Treasurer 1997 201,579 50,345 28,422 18,703
and Director
William P. Spencer(3) 1999 161,700 609 282,422 22,907
President, Chief Financial 1998 182,000 304 779,409 39,838
Officer and Director 1997 178,830 72,304 166,178 37,438
R. David Lough(4) 1999 75,000 -- 9,246 2,739
Executive Vice President 1998 -- -- -- --
1997 -- -- -- --
Douglas E. Flaker(4) 1999 50,000 -- 9,339 2,588
Vice President of Marketing, 1998 -- -- -- --
Business Development and 1997 -- -- -- --
Strategic Planning
David K. Shunick(4) 1999 42,308 -- 3,000 690
Vice President of Operations 1998 -- -- -- --
1997 -- -- -- --
John A. Wise(4) 1999 110,000 629 46,905 21,433
Vice President of Science and 1998 -- -- -- --
Technology 1997 -- -- -- --
</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.
(2) See following table.
(3) In January 1999, Mr. Spencer ceased acting as an executive officer of the
Company. On June 29, 1999, Mr. Spencer resigned as a director of the
Company.
(4) Messrs. Lough, Flaker and Shunick joined the Company and Mr. Wise was
appointed an executive officer of the Company in fiscal 1999.
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<PAGE> 9
OTHER COMPENSATION TABLE
<TABLE>
<CAPTION>
Mark A. William P. R. David Douglas David K. John A.
LeDoux Spencer Lough E. Flaker Shunick Wise
-------- ---------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Other Annual Compensation-1999
Gain from exercise and sale of stock options $325,030 $265,707 $ -- $ -- $ -- $26,353
Personal Transportation 18,000 13,500 9,000 9,000 3,000 18,000
Other Personal Expenses 2,751 3,215 246 339 -- 2,552
-------- -------- ------ ------ ------ -------
Totals $345,781 $282,422 $9,246 $9,339 $3,000 $46,905
-------- -------- ------ ------ ------ -------
Other Annual Compensation-1998
Gain from exercise and sale of stock options $ -- $730,084 $ -- $ -- $ -- --
Personal Transportation 18,000 18,000 -- -- -- --
Other Personal Expenses 22,270 31,325 -- -- -- --
-------- -------- ------ ------ ------ -------
Totals $ 40,270 $779,409 $ -- $ -- $ -- $ --
-------- -------- ------ ------ ------ -------
Other Annual Compensation-1997
Gain from exercise and sale of stock options $ -- $ 92,799 $ -- $ -- $ -- $ --
Personal Transportation 18,600 13,800 -- -- -- --
Other Personal Expenses 9,822 59,579 -- -- -- --
-------- -------- ------ ------ ------ -------
Totals $ 28,422 $166,178 $ -- $ -- $ -- $ --
-------- -------- ------ ------ ------ -------
All Other Compensation-1999
401(k) Employer Contributions $ 8,075 $ 4,200 $ -- $ -- $ -- $ 6,400
Life Insurance and Disability Premiums 4,972 4,624 268 117 89 3,452
Medical, Dental and Vision 14,709 14,083 2,471 2,471 601 11,581
-------- -------- ------ ------ ------ -------
Totals $ 27,756 $ 22,907 $2,739 $2,588 $ 690 $21,433
-------- -------- ------ ------ ------ -------
All Other Compensation-1998
401(k) Employer Contributions $ 5,675 $ 7,647 $ -- $ -- $ -- $ --
Life Insurance and Disability Premiums 4,621 15,446 -- -- -- --
Medical, Dental and Vision 15,046 14,245 -- -- -- --
Board of Directors Meetings 2,500 2,500 -- -- -- --
-------- -------- ------ ------ ------ -------
Totals $ 27,842 $ 39,838 $ -- $ -- $ -- $ --
-------- -------- ------ ------ ------ -------
All Other Compensation-1997
401(k) Employer Contributions $ 5,550 $ 6,698 $ -- $ -- $ -- $ --
Life Insurance Premiums 1,920 13,990 -- -- -- --
Medical, Dental and Vision 10,233 15,750 -- -- -- --
Board of Directors Meetings 1,000 1,000 -- -- -- --
-------- -------- ------ ------ ------ -------
Totals $ 18,703 $ 37,438 $ -- $ -- $ -- $ --
-------- -------- ------ ------ ------ -------
</TABLE>
OPTION GRANTS
The following table contains information concerning the stock option
grants to the Company's named executive officers that were made for the fiscal
year ended June 30, 1999:
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<PAGE> 10
OPTION GRANTS IN FISCAL 1999
<TABLE>
<CAPTION>
Potential Realizable
Value at
Assumed Annual Rate
Number of Percent of of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Exercise or Option Term(2)
Options Employees in Base Price Expire -------------------
Granted(#) Fiscal Year ($/Share)(1) Date 5%($) 10%($)
---------- ----------- ------------ ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
R. David Lough 30,000 42.86% $3.78 May 10, 2004 $31,330 $69,232
Douglas E. Flaker 20,000 28.57% $3.78 May 10, 2004 $20,887 $46,155
David K. Shunick 20,000 28.57% $3.78 May 10, 2004 $20,887 $46,155
------ ------
Total 70,000 100.00%
</TABLE>
(1) The options granted to the named officers were granted under the Company's
1992 Incentive Stock Option Plan on May 10, 1999 at the fair market value
price on that date of $3.78. The following restrictions apply to the
options granted: (a) the recipient must be employed with the Company on a
full time basis on the date of exercise; (b) the recipient may not be in
default of any condition of any written employment agreement; (c) the
recipient must be an officer of the Company on the date of exercise; and
(d) one-third of the options granted are exercisable on each of the three
(3) anniversaries of the date of grant of the option.
(2) The potential realizable value of each grant of options has been
calculated, pursuant to the regulations promulgated by the Securities and
Exchange Commission (the "SEC"), assuming the market price of the Common
Stock appreciates in value from the date of grant to the end of the option
term at the annualized rates of 5% and 10%, respectively. These numbers are
calculated based on the requirements promulgated by the SEC and do not
reflect the Company's estimates of future stock price growth. Unless the
market price of the Common Stock does in fact appreciate over the option
term, no value will be realized from the option grants made to the
executive officers.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning option exercises
and option holdings under the 1992 Incentive Stock Option Plan, the 1992
Nonqualified Stock Option Plan and the 1994 Nonqualified Stock Option Plan for
the year ended June 30, 1999, with respect to the Company's named executive
officers:
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<PAGE> 11
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1999 AND FISCAL YEAR END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised
Securities Underlying In-the-Money
Unexercised Options/SARs Options/SARs at Fiscal
Shares at Fiscal Year-End(#) Year-End($)(1)
Acquired on Value ------------------------- -------------------------
Name Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
1992 PLANS
Mark A. LeDoux 60,000 $325,030 22,500/ 7,500 --/--
William P. Spencer 24,000 265,707 --/ -- --/-
R. David Lough -- -- --/30,000 --/--
Douglas E. Flaker -- -- --/20,000 --/--
David K. Shunick -- -- --/20,000 --/--
John A. Wise 2,888 26,353 33,750/11,250 --/--
1994 PLAN
Mark A. LeDoux -- -- 100,000/ -- --/--
John A. Wise -- -- 60,000/ -- --/--
</TABLE>
(1) The closing price of the Company's common stock at June 30, 1999, as quoted
on the National Market System of the Nasdaq Stock Market, was $3.438.
EMPLOYMENT AGREEMENTS
During 1999, the Company had employment agreements with Mark A. LeDoux,
R. David Lough, Douglas E. Flaker, David K. Shunick and John A. Wise. In
addition, Marie A. LeDoux acts as Secretary of the Company. Her employment as
Secretary is not reflected in a written employment agreement. In her capacity as
Secretary of the Company, Mrs. LeDoux receives compensation in the amount of
$24,000 per year.
Mr. LeDoux's 1999 employment agreement provided for an annual salary of
$208,000. The agreement was effective October 1, 1998 and had a term of 12
months. The agreement also provided for automobile expense reimbursement of
$1,500 per month. On July 6, 1999, the Board of Directors of the Company
increased Mr. LeDoux's base annual salary to $260,000. The Company has entered
into a new employment agreement with Mr. LeDoux for the period October 1, 1999
through September 30, 2000. In the event Mr. LeDoux's employment is terminated
without cause, he would be entitled to severance pay equal to one (1) year's
compensation.
Mr. Lough's 1999 employment agreement provided for a monthly salary of
$12,500. The agreement was effective December 14, 1998 and expired September 30,
1999. The agreement also provided for automobile expense reimbursement of $1,500
per month and a one-time obligation to pay direct expenses of moving personal
property and reimbursing additional relocation expenses in the amount of
$20,000. The Company has entered into a new employment agreement with Mr. Lough
for the period October 1, 1999 through September 30, 2000. The new agreement
provides for an annual salary of $150,000 and automobile expense reimbursement
of $1,500 per month. In the event Mr. Lough's employment is terminated without
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<PAGE> 12
cause, he would be entitled to severance pay of between two and 12 month's
compensation, depending upon the length of time elapsed since commencement of
his employment.
Mr. Flaker's 1999 employment agreement provided for a monthly salary
equal to $8,333 in 1999. The agreement was effective December 14, 1998 and
expired September 30, 1999. The agreement also provided for automobile expense
reimbursement of $1,500 per month. The Company has entered into a new employment
agreement with Mr. Flaker for the period October 1, 1999 through September 30,
2000. The new agreement provides for an annual salary of $115,000 and a monthly
automobile expense reimbursement of $1,500. In the event Mr. Flaker's employment
is terminated without cause, he would be entitled to severance pay of between
two and 12 month's compensation, depending upon the length of time elapsed since
commencement of his employment.
Mr. Shunick's 1999 employment agreement provided for a monthly salary of
$10,417. The agreement was effective February 15, 1999 and expired September 30,
1999. The agreement also provided for automobile expense reimbursement of $750
per month and a one-time obligation to pay direct expenses of moving personal
property and reimbursing additional relocation expenses in the amount of
$15,000. The Company has entered into a new employment agreement with Mr.
Shunick for the period October 1, 1999 through September 30, 2000. The new
agreement provided for an annual salary of $125,000 and a monthly automobile
expense reimbursement of $750. In the event Mr. Shunick's employment is
terminated without cause, he would be entitled to severance pay of between two
and 12 month's compensation, depending upon the length of time elapsed since
commencement of his employment.
Mr. Wise's 1999 employment agreement provided for an annual salary of
$110,000. The agreement is effective October 1, 1998 and had a term of 12
months. The agreement also provided for automobile expense reimbursement of
$1,500 per month. The Company has entered into a new employment agreement for
the period October 1, 1999 through September 30, 2000. The new agreement
provides for an annual salary of $140,000 and a monthly automobile expense
reimbursement of $1,500. In the event Mr. Wise's employment is terminated
without cause, he would be entitled to severance pay equal to one year's
compensation.
BONUS PLAN
The Human Resources Committee is working on the creation of an Executive
Performance Bonus Plan for certain employees of the Company, and anticipates
such plan may be established during the fiscal year 2000. There were no bonus
plans in effect at June 30, 1999.
401(k) PLAN
The Natural Alternatives Partnership for Profits Plan (the "401(k) Plan")
is considered a qualified plan under Section 401(k) of the Internal Revenue Code
(the "Code"). All employees of the Company with twelve months and at least one
thousand hours of service during such twelve month period are eligible to
participate in the 401(k) Plan. The 401(k) Plan provides for employee
contributions of up to 15% of compensation. Employer contributions are
determined by the Board in its 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 401(k) Plan are 100% vested.
Participants become vested in employer contributions at the rate of 33% per
year until fully vested. The Company contributed to the 401(k) Plan and expensed
$167,218, $146,277 and $114,206, in 1999, 1998 and 1997, respectively.
9
<PAGE> 13
STOCK OPTION PLANS
The Company maintains two stock option plans: the 1992 Incentive Stock
Option Plan (the "Incentive Plan"), which was approved by the stockholders of
the Company at its Annual Meeting of Stockholders on June 5, 1992, and the 1994
Nonqualified Stock Option Plan (the "1994 Nonqualified Plan"), which was
approved by the Board of Directors on December 9, 1994 and by the stockholders
of the Company at its Annual Meeting of Stockholders on May 10, 1996. The
Incentive Plan provides for the granting of "incentive stock options" as
described in Section 422 of the Internal Revenue Code of 1986 (the "Code"). The
1994 Nonqualified Plan provides for the granting of nonqualified stock options
which are not intended to qualify under any provision of the Code. The Company
previously maintained a third stock option plan, the 1992 Nonqualified Stock
Option Plan, which was approved by the Stockholders of the Company at its Annual
Meeting of Stockholders on June 5, 1992. The 1992 Nonqualified Stock Option Plan
had all remaining outstanding options exercised during fiscal 1999.
On September 9, 1993, all options then authorized under the Incentive
Plan were granted with exercise price equal to 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.
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. On January 21, 1998,
options for 300,000 shares under the Incentive Plan were granted at the fair
market value of $10.50 per share. During fiscal 1999, 125,000 shares underlying
those options were forfeited by terminated employees. On May 10, 1999, options
for 70,000 shares under the Incentive Plan were granted at the fair market value
of $3.78 per share. During fiscal 1999, 188,250 shares under the Incentive Plan
were forfeited by terminated employees.
INCENTIVE PLAN
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
responsible for the management, growth and financial success of the Company may
be offered incentives to encourage them to acquire a proprietary 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 may not exceed 500,000 shares, subject to certain
adjustments.
The Incentive Plan is to be administered by either the Board of Directors
("Board") or the Company's Human Resources Committee. Subject to the express
provisions of the Incentive Plan, the Board or the Human Resources 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 Human Resources Committee will also have the authority to interpret
the provisions in the Incentive Plan and to prescribe rules and regulations for
its orderly administration.
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
10
<PAGE> 14
for such number of share as is determined by the Board or the Human Resources
Committee and set forth in the instrument evidencing the option. No option
granted under the Incentive Plan shall have a term in excess of ten years from
the date of grant.
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
exercisable 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.
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,
appropriate 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.
1994 NONQUALIFIED PLANS
The purpose of the 1994 Nonqualified Plan (the "Nonqualified Plan") is to
provide an incentive to eligible employees, consultants and officers, whose
present and potential contributions are important to the continued success of
the Company, the opportunity to acquire a proprietary interest in the Company.
The Nonqualified Plan also enables the Company to enlist and retain in its
employment qualified personnel for the successful conduct of its business.
Officers, consultants and other 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 Plan.
The administrators of the Nonqualified Plan shall be either the Board of
the Company or a committee designated by the Board. The administrators have full
power to select, from among the officers, 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 Plan.
The exercise price for each share covered by the Nonqualified Plan will
be determined by the administrators, but will not be less than 100% of the fair
market value of a share of Common Stock of the Company on the date of grant of
such option. The term of each option will be fixed by the administrators of the
Nonqualified Plan. 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.
Options granted pursuant to the Nonqualified Plan are nontransferable by
their participants, other than by will or by the laws of descent or
distribution, 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
consulting
11
<PAGE> 15
relationship for any reason other than death or total and permanent disability,
an option may be thereafter exercised, to the extent it was exercisable at the
date of such termination, for such period of time as the administrator shall
determine at the time of grant, but only to the extent that the term of the
option has not expired.
Subject to the Nonqualified Plan's change in control provisions, in the
event of the sale of substantially all of the assets of the Company or the
merger of the Company with or into another corporation, each outstanding option
shall be assumed or substituted by such successor corporation or parent or
subsidiary of such successor corporation. The Nonqualified Plan also provides
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 Plan and the price per share covered by each outstanding option.
DEFINED BENEFIT PENSION PLAN
The Company sponsors a defined benefit pension plan (the "Plan"), which
provides retirement benefits to employees based generally on years of service
and compensation during the last five years before retirement. Effective June
21, 1999, the Company adopted an amendment to freeze benefit accruals and
admission of new participants into the Plan, resulting in the recognition of
$97,606 of net curtailment gains in 1999. The gains resulted from the net
decrease of the Company's benefit obligation. For the year ended June 30, 1999,
the estimated amortized portion of the unfunded estimated accrued liability for
prior service cost, using a 30-year funding period, amounted to $410,048. This
amount has been accrued in the current period. The Company's policy is to fund
the net pension cost accrued. However, the Company would not contribute an
amount less than the minimum funding requirements of the Employee Retirement
Income Security Act of 1974 or more than the maximum tax-deductible amount.
REPORT OF THE HUMAN RESOURCES COMMITTEE
The Human Resources Committee is a standing committee of the Board of
Directors of the Company and is composed entirely of outside directors. The
Human Resources Committee is responsible for adopting and evaluating the
effectiveness of compensation policies and programs for the Company and for
making recommendations regarding the appointment and the compensation of the
Company's executive and other officers to the full Board of Directors of the
Company.
The following report is submitted by the Human Resources Committee
members with respect to the executive compensation policies established by the
Human Resources Committee and compensation paid or awarded to executive and
other officers for fiscal year 1999.
COMPENSATION PHILOSOPHY AND OBJECTIVES
In adopting and evaluating the effectiveness of compensation programs for
executive officers, as well as other employees of the Company, the Human
Resources Committee is guided by three basic principles:
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<PAGE> 16
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 attract
well-qualified executives when the need arises, the Company strives to offer
salaries, health care and other employee benefit programs to its employees
comparable to those offered by competing businesses. In establishing salaries
for executive officers, the Human Resources Committee reviews the historical
performance of the executives and 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 of the
Company in 1999 were generally comparable to or lower than those offered by
comparable companies in Southern California.
STOCK OPTIONS AND EQUITY-BASED PROGRAMS
In order to align the financial interest of senior executives and other
key employees with those of the stockholders, the Company grants stock options
to purchase Common Stock of the Company to its senior executives and other key
employees on a periodic basis. Stock option grants reward senior executives and
other key employees for performance, which results in increases in the market
price of the Company's Common Stock, which directly benefits all stockholders.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Mr. LeDoux, the Chief Executive Officer, is awarded a base salary and is
evaluated substantially in accordance with the foregoing policies. During fiscal
1999, Mr. LeDoux's base salary was $208,000. No incentive bonuses were issued in
1999. In determining Mr. LeDoux's base salary for fiscal year 1999, the Human
Resources Committee, in its discretion, made no change from the prior period. In
making the determination to increase Mr. LeDoux's base salary to $260,000
annually for the period October 1, 1999 through September 30, 2000, the
committee considered the base salary of CEO's in comparable companies, the
lesser number of recent and proposed option grants to Mr. LeDoux compared to
other executives, and Mr. LeDoux's role in implementing the Company's stated
strategic goals in the past twelve months, including but not limited to a
reorganization of management, reorganization of employee benefits and executive
compensation plan, creation of a new strategic plan, new marketing programs,
implementation of a new accounting system, and successful establishment of a
foreign subsidiary. No specific weight was
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<PAGE> 17
assigned to these factors by the Human Resources Committee in determining the
amount of Mr. LeDoux's base salary.
Human Resources Committee
William R. Kellas
J. Scott Schmidt
Lee G. Weldon
The foregoing report and the Stockholder Return Performance Graph
hereinbelow are not "soliciting material," are not deemed filed with the SEC and
shall not be deemed incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933 or under the Securities Exchange Act of 1934, except to
the extent the Company specifically incorporates this report by reference and
shall not otherwise be deemed filed under such Acts.
HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Human Resources Committee for fiscal 1999
were William R. Kellas, Lee G. Weldon and J. Scott Schmidt There were no
interlocks or other relationships among the Company's executive officers and
directors that are required to be disclosed under applicable executive
compensation disclosure regulations.
14
<PAGE> 18
STOCKHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly performance of the
cumulative total stockholder return (change in stock price plus reinvested
dividends) on the Company's Common Stock with the total return of the Nasdaq US
Index and Nasdaq Pharmaceutical Companies for the period beginning June 30, 1994
and ending June 30, 1999. The comparisons in the graph are required by the SEC
and are not intended to forecast or be indicative of possible future performance
of the Company's Common Stock.
STOCKHOLDER RETURN PERFORMANCE TABLE
(PERFORMANCE GRAPH)
<TABLE>
<CAPTION>
6/30/94 6/30/95 6/30/96 6/30/97 6/30/98 6/30/99
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Natural Alternatives International, Inc. 100 71 109 87 229 39
Nasdaq US 100 133 171 209 275 392
Nasdaq Pharmaceuticals 100 133 196 1994 205 285
</TABLE>
Assumes a $100 investment on June 30, 1994 in each of the Company's
Common Stock, the securities comprising the Nasdaq US Index, and the securities
comprising the Nasdaq Pharmaceutical Companies.
15
<PAGE> 19
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 September 30, 1999 by (i) each
director and nominee for director; (ii) each of the Company's executive officers
named in the Summary Compensation Table; (iii) all executive officers and
directors of the Company as a group; and (iv) each person who is known by the
Company to beneficially own more than 5% of the Company's Common Stock. Except
as otherwise indicated in the footnotes and subject to applicable 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.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENT BENEFICIALLY
OWNED OWNED(1)
------- ----
<S> <C> <C>
Wellington Management Co. LLP(2) 582,800 9.9%
75 State Street
Boston, MA 02109
FMR Corp.(3) 346,400 5.98%
82 Devonshire Street
Boston, MA 02109
Kennedy Capital Management, Inc.(4) 335,800 5.7%
10829 Olive Blvd
St. Louis, MO 63141
Wasatch Advisors, Inc.(5) 315,025 5.4%
150 Social Hall Avenue
Salt Lake City, UT 84111
Marie A. LeDoux(6) 1,017,301 16.99%
Mark A. LeDoux(7) 404,917 6.76%
John A. Wise(9) 118,250 1.99%
William R. Kellas(8) 29,500 .49%
Lee G. Weldon 43,880 .73%
R. David Lough 10,200 .17%
Douglas E. Flaker 5,900 .10%
David K. Shunick 4,000 .07%
All Directors and Officers 1,633,948 27.30%
as a Group (8 Persons)(5)
</TABLE>
- ----------
(1) Shares of Common Stock which were not outstanding but which could be
acquired upon exercise of an option within 60 days from September 30, 1999
are considered outstanding for the purpose of computing the percentage of
outstanding shares beneficially owned. However, such shares are not
considered to be outstanding for any other purpose.
16
<PAGE> 20
(2) Based on its Schedule 13G dated February 8, 1999, wherein Wellington
Management Co. LLP ("Wellington") reported the beneficial ownership of
582,800 shares of the Company's Common Stock. Wellington reports that it
has shared voting power as to 507,800 of such shares, does not have sole
voting power as to any of such shares, and has shared dispositive power as
to all of such shares.
(3) Based on its Schedule 13G dated February 12, 1999 wherein FMR Corp. ("FMR")
reported the beneficial ownership of 346,400 shares of the Company's Common
Stock. FMR reports it has sole power to direct the vote of 230,800 of such
shares, does not have shared authority to vote any of such shares, and has
sole dispositive powers as to all of such shares.
(4) Based on its Schedule 13G dated February 9, 1999 wherein Kennedy Capital
Management, Inc. ("Kennedy") reported beneficial ownership of 335,800
shares of the Company's Common Stock. Kennedy reports it has sole voting
power as to 316,050 of such shares, does not have shared voting power as to
any of such shares and has sole dispositive power as to all of such shares.
(5) Based on its Schedule 13G/A dated February 12, 1999.
(6) Includes 10,000 shares which Mrs. LeDoux has the right to acquire upon
exercise of options exercisable within 60 days of September 30, 1999.
(7) Includes 800 shares held in the name of Mr. LeDoux's wife, Julie LeDoux and
8,000 shares held as custodian for his children and a niece. Also includes
122,500 shares which Mr. LeDoux has the right to acquire upon exercise of
options exercisable within 60 days of September 30, 1999.
(8) Includes 1,500 shares of common stock held in the name of Dr. Kellas' wife.
(9) Includes 93,750 shares which Mr. Wise has the right to acquire upon
exercise of options exercisable within 60 days of September 30, 1999.
There is no arrangement known by the Company, the operation of which may
at a subsequent date, result in a change of control of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997, the Company had sales of $14,812, in which the former
President and stockholder, William A. Toomey, was at that time a key employee
and beneficial owner of 1% of the stock of the Company. At June 30, 1997, the
amount receivable from Perfect Equation, Inc. was $775,302, which amount was
fully reserved because the Company had determined the account to be doubtful of
collection. The Company recovered $263,400 in the year ended June 30, 1998, and
$511,902 was written off in the year ended June 30, 1999.
The Company entered into an agreement with the father-in-law and
mother-in-law of the Chief Executive Officer of the Company in December, 1991,
which provides commissions on sales to a particular customer. The agreement will
expire in December, 2001. The commission equals 5% of sales, and is capped at
$25,000 per calendar quarter, effective January 1, 1993. Amounts paid under this
agreement were $100,000 for each of the years ended June 30, 1999, 1998 and
1997. There were no amounts remaining due and unpaid under the agreement at June
30, 1999 or 1998.
Included in notes receivable are notes with the Chief Executive Officer,
the Vice President of Science and Technology, the Vice President of Marketing,
and the Vice President of Operations. During fiscal 1999, the Company made 6%
interest-bearing loans, secured by Company Stock, for $20,000 each to
17
<PAGE> 21
the Vice President of Science and Technology, the Vice President of Marketing,
and the Vice President of Operations. The balances of these notes as of June 30,
including accrued interest, are shown below:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Chief Executive Officer $63,208 $84,685
Vice President of Science and Technology 79,036 52,538
Vice President of Marketing 20,143 --
Vice President of Operations 20,143 --
</TABLE>
In addition, during December, 1998, the Company made a 5 1/2%
interest-bearing loan to the Executive Vice President in the amount of $250,000.
The loan, including accrued interest, was repaid in February 1999.
During the year ended June 30, 1999, the Company made
non-interest-bearing loans to the Chairman of the Bard and the former President
in the amount of $50,000 and $6,901, respectively. Amounts owed on these loans,
which are secured by proceeds from life insurance policies on their respective
lives, were $250,000 and $200,000 for the Chairman of the Board and $0 and
$82,815 for the former President at June 30, 1999 and 1998, respectively.
PROPOSAL 3
APPROVAL OF THE ADOPTION OF THE
NATURAL ALTERNATIVES INTERNATIONAL, INC.
1999 OMNIBUS EQUITY INCENTIVE PLAN (THE "1999 PLAN")
AND THE RESERVATION OF 500,000 SHARES
OF COMMON STOCK THEREUNDER
The 1999 Plan was adopted by the Board of Directors of the Company
effective May 10, 1999 subject to approval by the stockholders. The purpose of
the 1999 Plan is to promote the long-term success of the Company and the
creation of stockholder value by (a) encouraging Employees, Outside Directors
and Consultants to focus on critical long-range objectives, (b) encouraging the
attraction and retention of Employees, Outside Directors and Consultants with
exceptional qualifications and (c) linking Employees, Outside Directors and
Consultants directly to stockholder interests through increased stock ownership.
The Plan seeks to achieve this purpose by providing for awards in the form of
restricted shares, stock units, options (which may constitute incentive stock
options or nonstatutory stock options) and stock appreciation rights ("SAR").
The primary features of the 1999 Plan are summarized below. This summary
is qualified in its entirety by reference to the specific provisions of the 1999
Plan, the full text of which is set forth as Exhibit A to this Proxy Statement.
SHARES AVAILABLE FOR GRANTS
The shares of the Company's common stock issued pursuant to the 1999 Plan
may be authorized but unissued shares or treasury shares. The aggregate number
of options, SARs, stock units and restricted shares awarded under the 1999 Plan
shall not exceed (a) the shares reserved to the 1999 Plan by the Board of
Directors and approved by the stockholders plus (b) additional common shares
added by an annual increase
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<PAGE> 22
provision contained in the 1999 Plan and by common shares again becoming subject
to the 1999 Plan through forfeitures, option expiration and similar events.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
Options may be granted under the 1999 Plan by the Board of Directors as
incentive stock options ("ISOs") intended to qualify for favorable tax treatment
under U.S. tax law, or as nonqualified stock options ("NSOs"). Stock
appreciation rights ("SARs") may be granted with respect to any options granted
under the 1999 Plan and may be exercised only when the underlying option is
exercisable. A SAR permits the holder to surrender an option or any portion
thereof and receive in exchange shares of common stock, cash or a combination
thereof, with an aggregate value equal to the excess of the fair market value of
one share of common stock over the exercise price specified in such option
multiplied by the number of shares covered by such option or portion thereof
which is to be exercised. The 1999 Plan requires that the exercise price of all
ISOs be equal or greater than the fair market value of the Company's common
stock on the date of grant of that option and that the exercise price of all
NSOs and SARs be equal or greater than eighty-five percent of the fair market
value of the Company's common stock on the date of grant of that option or SAR.
The term of any ISO or related SAR cannot exceed ten years from date of grant,
and the term of any NSO cannot exceed ten years and one month from date of
grant. Subject to the terms of the 1999 Plan and any additional restrictions
imposed at the time of grant, options and any related SARs will become
exercisable commencing as specified in the agreement evidencing the option or
SAR.
Subject to such rules as the Human Resources Committee of the Board of
Directors of the Company (the "Committee") may impose, the exercise price of an
option may be paid in cash, in shares of the Company's common stock already
owned by the optionee, with a combination of cash and shares, by effecting a
"cashless exercise" if so approved by the Board of Directors of the Company, or
with such other consideration as shall be approved by the Board of Directors of
the Company. A "cashless exercise" is one or more techniques which allow the
optionee to exercise stock options without cash either through the assistance of
a broker by either a simultaneous exercise and sale, or a broker loan, or by
surrendering shares underlying the option with a fair market value equal to the
exercise price of the shares purchased upon exercise. The "cashless exercise"
technique does not increase the compensation the option provides, and the
optionee receives the same economic benefit as he or she would upon exercise of
a stock appreciation right issued in tandem with the option.
The 1999 Plan provides for the automatic grant of NSOs to outside
Directors. Upon first becoming a member of the Board of Directors of the
Company, each outside Director receives a NSO to purchase 10,000 common shares.
Thereafter, each outside Director receives an additional NSO covering 10,000
common shares each year he or she continues serving on the Board of Directors of
the Company.
In the case of a Change in Control of the Company, as defined in the 1999
Plan, options granted pursuant to the 1999 Plan may become fully exercisable as
to all optioned shares from and after the date of such Change in Control, in the
discretion of the Committee or as may otherwise be provided in the grantee's
option agreement.
RESTRICTED STOCK AWARDS TO EMPLOYEES
The Committee or the Board of Directors may grant shares of common stock
to 1999 Plan participants in such amounts, and subject to such restrictions
("Restricted Stock") and additional terms and conditions, if any, as the
Committee, in its sole discretion, shall determine, consistent with the
provisions of the 1999 Plan. As a condition to any award of Restricted Stock,
the Committee may require a participant
19
<PAGE> 23
to pay an amount equal to, or in excess of, the par value of the shares of
Restricted Stock or common stock awarded to him or her.
Restricted Stock may not be sold, assigned, transferred, pledged or
otherwise encumbered during a "Restricted Period," which in the case of grants
to employees shall not be less than one year from the date of grant. The
Restricted Period with respect to any outstanding shares of Restricted Stock
awarded to employees may be reduced by the Committee at any time, but in no
event shall the Restricted Period be less than one year. Except for such
restrictions, the employee as the owner of such stock, shall have all of the
rights of a stockholder including, but not limited to, the right to vote such
stock and to receive dividends thereon as and when paid.
In the event an employee's employment is terminated for any reason, an
employee's Restricted Stock will be subject to repurchase by the Company at the
original purchase price; provided, however, that the Committee or the Board of
Directors may limit such repurchase right in its sole discretion. At the end of
the Restricted Period all shares of Restricted Stock shall be transferred free
and clear of all restrictions to the employee. In the case of a Change in
Control of the Company as defined in the 1999 Plan, an employee may receive his
or her Restricted Stock free and clear of all restrictions in the discretion of
the Committee or as may otherwise be provided pursuant to the employee's
Restricted Stock award.
STOCK UNIT AWARDS
The Committee or the Board of Directors may grant stock unit awards
("Stock Units") consisting of bookkeeping entries equivalent to the ownership of
shares of common stock, at such times and in such amounts as it may determine.
Such Stock Units shall be subject to all applicable terms of the 1999 Plan and
such additional terms and conditions, if any, as the Committee or the Board of
Directors may determine from time to time. The provisions of the various
agreements governing Stock Units need not be identical. No cash payment is
required of any recipient of an award of Stock Units.
Stock Units have no voting rights associated with them. Stock Units may
be entitled to dividend equivalent rights, in the discretion of the Committee or
the Board of Directors. Dividend equivalents may be converted into additional
Stock Units, may be settled in cash or may be settled in common stock or a
combination of cash and common stock. Settlement of the Stock Units themselves
may also be made in the form of cash, common stock or a combination of both. The
method for converting Stock Units to cash shall be determined by the Committee
or the Board of Directors, in its discretion.
Any Stock Units which are settled or become payable following the death
of the recipient shall be paid or distributed to the recipient's designated
beneficiary. If no beneficiary has been designated payment or distribution shall
be made to the recipient's estate. The recipient of any Stock Units shall have
no rights, except those of a general, unsecured creditor of the Company. All
such rights shall also be subject to the terms of any applicable Stock Unit
agreement.
PLAN ADMINISTRATION
The 1999 Plan will be administered by the Committee or the Board of
Directors. The Board of Directors of the Company will have the authority to
amend the 1999 Plan as it deems advisable; however no such amendment will,
without authorization and approval of stockholders: (i) increase the aggregate
number of shares available for the granting of awards under the 1999 Plan except
in the event of any stock split, reverse stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination or exchange
of shares, split-up, split-off, spin-off, liquidation or other similar corporate
change; (ii) change
20
<PAGE> 24
the manner of determining the minimum exercise prices other than to change the
manner of determining the fair market value of the common stock; and (iii)
extend the period during which awards may be granted or exercised.
Subject to the terms of the 1999 Plan, the Committee or the Board of
Directors will select the individuals to whom options, SARs, Restricted Stock
and Stock Unit awards will be granted, determining the number of shares subject
to each option award and SAR, prescribe the terms and conditions of each option
award, SAR and Stock Unit award granted under the 1999 Plan, and make any other
determination necessary or advisable for administration of the 1999 Plan.
Shares subject to options, related SARs or Stock Units which lapse
without having been exercised become available for new grants under the 1999
Plan. Any Restricted Stock or common stock issued upon exercise of the options
which is subsequently forfeited shall be available again for such new grants. To
the extent SARs are exercised or Stock Units settled, only the shares actually
issued will be charged against the maximum number of shares authorized under the
1999 Plan.
FEDERAL TAX CONSEQUENCES
The following is a general description of the federal income tax
consequences of Awards made under the Plan. State and local tax treatment, which
is not discussed below, may vary from the federal income tax treatment.
INCENTIVE STOCK OPTIONS. The recipient will not recognize taxable income
at the time an ISO is either granted or exercised. However, the amount by which
the fair market value at the time of exercise of the purchased shares exceeds
the exercise price paid for those shares will constitute an adjustment to the
recipient's income for purposes of the alternative minimum tax. Generally,
recipients will recognize income in the year in which they make a disposition of
the shares purchased under an ISO. A disposition of shares purchased under an
ISO will occur when the recipient transfers legal title to those shares, whether
by sale, exchange or gift, or delivers such shares in payment of the exercise
price of any other ISO prior to the satisfaction of the ISO holding periods.
However, a disposition will not occur as a result of any of the following
transactions: a transfer to spouse, a transfer into joint ownership with right
of survivorship, a pledge of the shares as collateral for a loan, a transfer by
bequest or inheritance upon death, or certain tax-free exchanges of the shares
permitted under the Code.
The federal income tax liability resulting from disposition of shares
purchased under an ISO will depend upon whether the holder makes a qualifying or
disqualifying disposition of the shares. A qualifying disposition will occur if
the sale or other disposition of the shares takes place more than two years
after the date the Incentive Option was granted and more than one year after the
date the option was exercised. A disqualifying disposition is any sale or other
disposition made before both of these minimum holding periods are satisfied.
A qualifying disposition results in recognition of a capital gain equal
to the excess of (a) the amount realized upon the sale or disposition over (b)
the exercise price paid for the shares. The capital gain will be "long-term" if
the recipient held the shares more than 18 months and "mid-term" if the
recipient held the shares more than one year but not more than 18 months. In
general, the maximum federal income tax rate on long-term capital gains is 20%,
and the maximum rate on mid-term capital gains is 28%. The recipient will
recognize a capital loss if the amount realized is lower than the exercise price
paid for the shares. No deduction is allowable to the Company in the event of a
qualifying disposition.
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<PAGE> 25
Normally, when shares purchased under an Incentive Option are made the
subject of a disqualifying disposition, the optionee will recognize ordinary
income at the time of the disposition in an amount equal to the excess of (a)
the fair market value of the shares on the exercise date over (b) the exercise
price paid for those shares. If the disqualifying disposition is effected by
means of an arm's length sale or exchange with an unrelated party, the ordinary
income will be limited to the amount by which the amount realized upon the
disposition of the shares exceeds the exercise price paid for the shares.
The amount of the optionee's disqualifying disposition income will be
reported by the Company on the optionee's W-2 wage statement for the year of
disposition, and any applicable withholding taxes that arise in connection with
the disqualifying disposition will be deducted from the optionee's wages or
otherwise collected from the optionee. The disqualifying disposition income is
deductible by the Company.
Any additional gain recognized upon the disqualifying disposition will be
capital gain. The capital gain will be long-term if the holder held the shares
more than 12 months, and short-term if held not more than one year. The maximum
federal income tax rate on long-term capital gains generally is 20%. Short-term
capital gains generally are taxed at the same rate as ordinary income.
NONQUALIFIED STOCK OPTIONS. The recipient of a nonqualified stock option
under the 1999 Plan will not recognize any taxable income at the time the option
is granted.
Upon exercise, the option holder will generally recognize ordinary
taxable income in an amount equal to the excess of the fair market value of the
shares of Common Stock received on the date of exercise over the option exercise
price. Upon a subsequent sale of the shares of Common Stock, long-term or
short-term capital gain or loss (depending upon the holding period) will
generally be recognized equal to the excess of the difference between the amount
realized over the fair market value of the shares on the date of exercise.
The Company will generally be entitled to a compensation deduction for
Federal income tax purposes in an amount equal to the taxable income recognized
by the option holder, provided the Company reports the income on a timely
provided and filed Form W-2 or 1099, whichever is applicable.
CASHLESS EXERCISE. An option holder who pays the option exercise price,
in whole or in part, delivering shares of Common Stock already owned by him or
her will generally recognize no gain or loss for Federal income tax purposes on
the shares surrendered, but otherwise will be taxed according to the rules
described above. As noted above, if shares received on the exercise of an
incentive stock option are used within the time periods that apply to a
disqualifying disposition, then the rules for disqualifying dispositions,
described above, will apply. To the extent the shares acquired upon exercises
are equal in number to the shares surrendered, the basis and holding period for
capital gains purposes will be the same as the shares surrendered. The basis of
such shares shall be increased by the income, if any, recognized in the case of
any applicable disqualifying disposition. The basis of the shares received in
excess of the shares surrendered upon exercise will be equal to the fair market
value of the shares on the date of exercise, and the holding period for the
shares received will commence on that date.
The Board of Directors elected to reserve for the 1999 Plan for
issuance thereunder, 500,000 shares of the Company's Common Stock, subject to
the approval of the stockholders. The reservation of such Common Stock will
enable the 1999 Plan to promote the long-term success of the Company and the
creation of stockholder value as intended by the Board of Directors and the
stockholders, assuming stockholder ratification of the adoption of the 1999
Plan.
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<PAGE> 26
REQUIRED VOTE
The affirmative vote of a majority of the holders of Common Stock voting
on the proposal is required for adoption of this Proposal 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3.
PROPOSAL 4
APPROVAL OF THE ADOPTION OF THE
NATURAL ALTERNATIVES INTERNATIONAL, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN AND
THE RESERVATION OF 150,000 SHARES OF
COMMON STOCK THEREUNDER
The Company's 1999 Employee Stock Purchase Plan (the "Purchase Plan"),
which was adopted by the Board in October, 1999, provides employees of the
Company with the opportunity to purchase shares of Common Stock through payroll
deductions. A total of 150,000 shares of Common Stock have been reserved for
issuance under the Purchase Plan, plus an annual increase to be added on the
first day of the Company's fiscal year beginning July 1, 2000 equal to the
lesser of: (i) 150,000 shares; (ii) 2% of the total number of outstanding shares
of stock on the last trading day of the prior fiscal year; or (iii) such amount
as determined by the Board. The Company is requesting shareholder approval of
the Purchase Plan in this Proxy Statement.
The principal features of the Purchase Plan are summarized below. This
summary is qualified in its entirety by reference to the provisions of the
Purchase Plan, the full text of which is set forth as Exhibit B to this Proxy
Statement.
PURPOSE
The purpose of the Purchase Plan is to assist the Company in retaining
the services of its employees, to secure and retain the services of the new
employees, and to provide incentives for such persons to exert maximum efforts
for the success of the Company.
The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan" as
that term is defined in Section 423(b) of the Code.
ADMINISTRATION
The Purchase Plan is administered by the Board, which has the final power
to construe and interpret the Purchase Plan and the rights granted under it. The
Board has the power, subject to the provisions of the Purchase Plan, to
determine when and how rights to purchase Common Stock of the Company will be
granted, the provisions of each offering of such rights (which need not be
identical), and whether any parent or subsidiary of the Company shall be
eligible to participate in such plan. The Board is authorized to delegate
administration of the Purchase Plan to a committee composed of one or more
non-employee members of the Board. The Board has delegated administration of the
Purchase Plan to the Human Resources Committee of the Board. As used herein with
respect to the Purchase Plan, the term "Board" refers to the Human Resources
Committee as well as to the Board of Directors.
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<PAGE> 27
ELIGIBILITY
Any person who is customarily employed at least 20 hours per week and
five months per calendar year by the Company (or by any parent or subsidiary of
the Company designated from time to time by the Board) on the first day of an
offering period is eligible to participate in that offering under the Purchase
Plan, provided such employee has been in the continuous employ of the Company
for three months.
Notwithstanding the foregoing, no employee is eligible for the grant of
any rights under the Purchase Plan if, immediately after such grant, the
employee would own, directly or indirectly, stock possessing 5% or more of the
total combined voting power or value of all classes of stock of the Company or
any affiliate of the Company (including any stock which such employee may
purchase under all outstanding rights and options), nor will any employee be
granted rights that would permit him to buy more than $25,000 worth of stock
(determined at the fair market value of the shares at the time such rights are
granted) under all employee stock purchase plans of the Company in any calendar
year.
OFFERING DATES
The Purchase Plan is implemented by accumulating payroll deductions of
participating employees generally during a six-month offering period, offering
periods thereunder to commence January 1 and July 1 of each year, provided,
however, the first two offering periods shall consist of three-month periods,
with the first offering period commencing on January 1, 2000 and ending on March
31, 2000, and the second offering period commencing on April 1, 2000 and ending
on June 30, 2000. The Board has the power to alter the duration of the offering
periods without stockholder approval, if such change is announced at least 5
days prior to the scheduled beginning of the first offering period to be
affected.
PURCHASE PRICE
The purchase price per share at which shares are sold in an offering
under the Purchase Plan is the lower of 85% of the fair market value of a share
of Common Stock on the date of commencement of the offering period or 85% of the
fair market value of a share of stock on the last day of the offering period.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions
over the offering period. The deductions may not exceed 15% of a participant's
compensation. A participant may discontinue his or her participation in the
Purchase Plan, and may decrease or increase the rate of payroll deductions
during an offering period, subject to the minimum and maximum percentage payroll
deduction requirements.
PURCHASE OF STOCK
By executing an agreement to participate in the Purchase Plan, the
employee is entitled to purchase shares under such plan. In connection with
offerings made under the Purchase Plan, the Board specifies a maximum number of
shares any employee may be granted the right to purchase and the maximum
aggregate number of shares which may be purchased pursuant to such offering by
all participants. If the aggregate number of shares to be purchased upon
exercise of rights granted in the offering exceeds the maximum aggregate number
of shares available for purchase, the Board will make a pro rata allocation of
shares available in a uniform and equitable manner. Unless the employee's
participation is discontinued, shares automatically are purchased upon the
designated purchase date or dates during the offering at the applicable price.
See "Withdrawal" below.
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<PAGE> 28
DURATION AND AMENDMENT
The Board may suspend, terminate or amend the Purchase Plan at any time.
Any amendment of the Purchase Plan must be approved by the stockholders within
12 months before or after its adoption by the Board if the amendment would (i)
increase the number of shares of Common Stock reserved for issuance under the
Purchase Plan except as provided for, (ii) modify the requirements relating to
eligibility for participation in the Purchase Plan, or (iii) modify any other
provision of the Purchase Plan if such modification requires stockholder
approval.
WITHDRAWAL; TERMINATION OF EMPLOYMENT
A participant's interest in a given offering period may be terminated by
signing and delivering to the Company a notice of withdrawal from the Purchase
Plan. Such withdrawal may be elected at any time prior to the end of the
applicable offering period. A participant's withdrawal from one offering period
does not have any effect upon such participant's eligibility to participate in
subsequent offerings. Upon withdrawal from an offering period, all payroll
deductions which have been credited to the participant's account prior to the
notice of withdrawal will be returned to the participant without interest.
Termination of a participant's employment for any reason, including
retirement or death, or the failure of the participant to remain in the
continuous employ of the Company for at least 20 hours per week during the
applicable offering period, cancels the participant's participation in the
Purchase Plan. In such event, the payroll deductions credited to the
participant's account will be returned to such participant or to his or her
beneficiaries without interest.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain federal income tax consequences of the
purchase of shares of Common Stock under the Purchase Plan is based on the laws
and regulations in effect as of the date of this Proxy Statement and does not
purport to be a complete statement of the law in this area. Furthermore, the
discussion below does not address the tax consequences under state and/or local
tax laws, and such tax laws may not correspond to the federal tax treatment
described herein.
The Purchase Plan is intended to qualify as an employee stock purchase
plan under Section 423 of the Code. If certain employee requirements are
satisfied, an employee who is granted a right, or "option," to purchase stock
under a plan meeting the requirements of Code Section 423 will not be subject to
federal income tax, and the Company will not be entitled to any deduction on
either the grant or the exercise of such right.
If the employee makes no disposition of the stock acquired pursuant to
the exercise of such right within two years after the date of the grant of such
stock purchase right (generally, the commencement date of the six-month offering
period, hereinafter referred to as the "Offering Date") or within one year after
the transfer of the stock to the employee pursuant to the exercise of such
right, any gain or loss on the subsequent disposition of the stock generally
will be treated as long-term capital gain or loss, except to the extent that the
employee's purchase price was less than 100% of the fair market value of the
stock on the Offering Date, and no deduction will be available to the Company at
the time of such disposition. If the employee's purchase price for the stock was
less than 100% of the fair market value of the stock on the Offering Date, the
employee will be required to include in his or her gross income as ordinary
income for the year of the disposition (or, if earlier, at the time of his or
her death) an amount equal to the lesser of (i) the excess of the fair market
value of the stock on the Offering Date over the purchase price that the
employee would have
25
<PAGE> 29
been required to pay if the purchase price had been determined as of the
Offering Date, or (ii) the excess of the fair market value of the stock at the
time of the disposition or death over the amount paid for the stock. No
deduction will be available to the Company with respect to any such ordinary
income recognized by the employee.
Any sale or other disposition of stock acquired under a right granted
under the Purchase Plan at any time within (i) two years after the Offering Date
or (ii) one year after the transfer of the shares to the employee pursuant to
the exercise of such right (other than a disposition by reason of death of the
employee or certain dispositions pursuant to insolvency proceedings) generally
will be treated as a "disqualifying disposition." Upon a disqualifying
disposition, the employee generally will recognize ordinary compensation income
in an amount equal to the difference between the purchase price and the fair
market value of the stock at the date the option is exercised. Any gain in
excess of such ordinary income amount generally will be short-term or long-term
capital gain, depending on the employee's holding period. The Company generally
will be entitled to a deduction in an amount equal to the amount of ordinary
income recognized by the employee by reason of a disqualifying disposition.
The Board elected to reserve to the 1999 Purchase Plan for issuance
thereunder, 150,000 shares of the Company's Common Stock, subject to the
approval of the stockholders. The reservation of such Common Stock will enable
the 1999 Purchase Plan to promote the long-term success of the Company and the
creation of stockholder value as intended by the Board and the stockholders,
assuming stockholder ratification of the adoption of the 1999 Purchase Plan.
REQUIRED VOTE
The affirmative vote of a majority of the holders of Common Stock voting
on the proposal is required for adoption of this Proposal 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 4.
PROPOSAL 5
SELECTION OF AUDITORS
Subject to stockholder approval at the Annual Meeting, the Board has
selected KPMG LLP to continue as the Company's independent auditors for the
fiscal year ending June 30, 2000. A representative of KPMG LLP is expected to be
present at the Annual Meeting.
Stockholder ratification of the selection of KPMG LLP as the Company's
independent auditors is not required by the Company's Bylaws or otherwise.
However, the Board is submitting the selection of KPMG 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.
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<PAGE> 30
REQUIRED VOTE
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 LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 5.
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<PAGE> 31
STOCKHOLDERS' PROPOSALS
Under Regulation Section 240.14a-5 adopted pursuant to Section 14(a) of
the Securities Exchange Act of 1934, stockholders who intend to submit proposals
at the 2000 Annual Meeting must submit such proposals to the Company no later
than July 1, 2000 in order for them to be included in the Proxy Statement and
the form of Proxy to be distributed by the Board in connection with that
meeting. If the 2000 Annual Meeting is held on a date which is not within 30
days of December 6, then such proposals must be submitted a reasonable time
before the Company begins to print and mail its proxy materials. If a
stockholder wishes to have a proposal considered at the 2000 Annual Meeting but
does not utilize the process set forth in Regulation Section 240.14a-5, the
Company's bylaws control the timely filing of such proposals. Under the
Company's bylaws, a stockholder proposal is not timely unless delivered to or
mailed to the Secretary of the Company and received at the executive offices of
the Company not less than thirty (30) days nor more than sixty (60) days prior
to the meeting as originally scheduled. In the event less than forty (40) days
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be made timely must be received by
the Company not later than the close of business on the tenth day following the
day on which notice of the date of the annual meeting was made or publicly
disclosed. It is recommended that stockholders submitting proposals or notices
of proposals direct them to the Secretary and to the Chief Financial Officer of
the Company and utilize Certified Mail-Return Receipt Requested. Stockholders'
proposals should be submitted to Natural Alternatives International, Inc., 1185
Linda Vista Drive, Suite D, San Marcos, CA 92069, Attn: Chief Financial Officer.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and any persons holding more than 10% of the
Company's Common Stock, to file reports of ownership and changes in ownership
with the SEC. 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. Specific due dates for these reports have been
established and the Company is required to identify in this Proxy Statement
those persons who failed to timely file these reports.
Based solely on its review of the copies of reporting forms received by
the Company, the Company believes that during the fiscal year ended June 30,
1999, all filing requirements under Section 16(a) were satisfied.
ANNUAL REPORTS
The Company's 1998 and 1999 Annual Reports which include audited
financial statements for the Company's fiscal years ended June 30, 1997, June
30, 1998 and June 30, 1999, respectively, are being mailed with this Proxy
Statement to stockholders of record on or about October 29, 1999.
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<PAGE> 32
OTHER MATTERS
The Board knows of no other matters which will be brought before the
Annual Meeting. If any other matter is properly brought before the Annual
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.
By Order of the Board of Directors
Marie A. LeDoux
Secretary
29
<PAGE> 33
EXHIBIT A
<PAGE> 34
EXHIBIT A
--------------------------------------
NATURAL ALTERNATIVES
INTERNATIONAL, INC.
1999 OMNIBUS
EQUITY INCENTIVE PLAN
AS ADOPTED EFFECTIVE
MAY 10, 1999
--------------------------------------
<PAGE> 35
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. INTRODUCTION ............................................................... A-1
ARTICLE 2. DEFINITIONS ................................................................ A-1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS ................................................. A-4
3.1 Basic Limitation ........................................................ A-4
3.2 Annual Increase in Shares ............................................... A-4
3.3 Additional Shares ....................................................... A-4
3.4 Dividend Equivalents .................................................... A-5
ARTICLE 4. ELIGIBILITY ................................................................ A-5
4.1 Incentive Stock Options ................................................. A-5
4.2 Other Grants ............................................................ A-5
ARTICLE 5. OPTIONS .................................................................... A-5
5.1 Stock Option Agreement .................................................. A-5
5.2 Number of Shares ........................................................ A-5
5.3 Exercise Price .......................................................... A-5
5.4 Exercisability and Term ................................................. A-6
5.5 Manner of Exercise ...................................................... A-6
5.6 Effect of Change in Control ............................................. A-6
5.7 Modification or Assumption of Options ................................... A-7
5.8 Buyout Provisions ....................................................... A-7
ARTICLE 6. PAYMENT FOR OPTION SHARES .................................................. A-7
6.1 General Rule ............................................................ A-7
6.2 Surrender of Stock ...................................................... A-7
6.3 Net Exercise ............................................................ A-7
6.4 Exercise/Sale ........................................................... A-8
6.5 Exercise/Pledge ......................................................... A-8
6.6 Promissory Note ......................................................... A-9
6.7 Other Forms of Payment .................................................. A-9
ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS ............................... A-9
7.1 Initial Grants .......................................................... A-9
7.2 Annual Grants ........................................................... A-9
7.3 Accelerated Exercisability .............................................. A-9
7.4 Exercise Price .......................................................... A-9
7.5 Term .................................................................... A-10
7.6 Affiliates of Outside Directors ......................................... A-10
</TABLE>
A-ii
<PAGE> 36
<TABLE>
<S> <C>
ARTICLE 8. STOCK APPRECIATION RIGHTS .................................................. A-10
8.1 SAR Agreement ........................................................... A-10
8.2 Number of Shares ........................................................ A-10
8.3 Exercise Price .......................................................... A-10
8.4 Exercisability and Term ................................................. A-10
8.5 Effect of Change in Control ............................................. A-11
8.6 Exercise of SARs ........................................................ A-11
8.7 Modification or Assumption of SARs ...................................... A-11
ARTICLE 9. RESTRICTED SHARES .......................................................... A-11
9.1 Restricted Stock Agreement .............................................. A-11
9.2 Payment for Awards ...................................................... A-11
9.3 Vesting Conditions ...................................................... A-11
9.4 Voting and Dividend Rights .............................................. A-12
9.5 Repurchase Option ....................................................... A-12
ARTICLE 10. STOCK UNITS ................................................................ A-12
10.1 Stock Unit Agreement .................................................... A-12
10.2 Payment for Awards ...................................................... A-12
10.3 Vesting Conditions ...................................................... A-12
10.4 Voting and Dividend Rights .............................................. A-13
10.5 Form and Time of Settlement of Stock Units .............................. A-13
10.6 Death of Recipient ...................................................... A-13
10.7 Creditors' Rights ....................................................... A-13
ARTICLE 11. PROTECTION AGAINST DILUTION ................................................ A-13
11.1 Adjustments ............................................................. A-13
11.2 Dissolution or Liquidation .............................................. A-14
11.3 Reorganizations ......................................................... A-14
ARTICLE 12. DEFERRAL OF AWARDS ......................................................... A-15
ARTICLE 13. AWARDS UNDER OTHER PLANS ................................................... A-15
ARTICLE 14. PAYMENT OF DIRECTOR'S FEES IN SECURITIES ................................... A-15
14.1 Effective Date .......................................................... A-15
14.2 Elections to Receive NSOs, Restricted Shares or Stock Units ............. A-16
14.3 Number and Terms of NSOs, Restricted Shares or Stock Units .............. A-16
ARTICLE 15. LIMITATION ON RIGHTS ....................................................... A-16
15.1 Retention Rights ........................................................ A-16
15.2 Stockholders' Rights .................................................... A-16
15.3 Conditions Upon Issuance of Common Shares ............................... A-16
</TABLE>
A-iii
<PAGE> 37
<TABLE>
<S> <C>
ARTICLE 16. WITHHOLDING TAXES .......................................................... A-18
16.1 General ................................................................. A-18
16.2 Share Withholding ....................................................... A-18
ARTICLE 17. FUTURE OF THE PLAN ......................................................... A-18
17.1 Term of the Plan ........................................................ A-18
17.2 Amendment or Termination ................................................ A-18
17.3 Stockholder Approval .................................................... A-18
17.4 Effect of Amendment or Termination ...................................... A-18
ARTICLE 18. LIMITATION ON PARACHUTE PAYMENTS ........................................... A-18
18.1 Scope of Limitation ..................................................... A-18
18.2 Basic Rule .............................................................. A-19
18.3 Reduction of Payments ................................................... A-19
18.4 Overpayments and Underpayments .......................................... A-19
18.5 Related Corporations .................................................... A-20
ARTICLE 19. INDEMNIFICATION ............................................................ A-20
ARTICLE 20. PROVISION OF INFORMATION ................................................... A-20
ARTICLE 21. ADMINISTRATION ............................................................. A-20
21.1 Committee Composition ................................................... A-20
21.2 Powers of the Committee ................................................. A-21
21.3 Committee for Non-Officer Grants ........................................ A-22
ARTICLE 22. EXECUTION .................................................................. A-22
</TABLE>
A-iv
<PAGE> 38
NATURAL ALTERNATIVES INTERNATIONAL, INC.
1999 OMNIBUS EQUITY INCENTIVE PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board effective May 10, 1999. The purpose of
the Plan is to promote the long-term success of the Company and the creation of
stockholder value by (a) encouraging Employees, Outside Directors and
Consultants to focus on critical long-range objectives, (b) encouraging the
attraction and retention of Employees, Outside Directors and Consultants with
exceptional qualifications and (c) linking Employees, Outside Directors and
Consultants directly to stockholder interests through increased stock ownership.
The Plan seeks to achieve this purpose by providing for Awards in the form of
Restricted Shares, Stock Units, Options (which may constitute incentive stock
options or nonstatutory stock options) and Stock Appreciation Rights. Terms
defined herein shall have the meanings set forth in "Article 21 -- Definitions."
The Plan shall be governed by, and construed in accordance with, the
laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. DEFINITIONS.
2.1 "AFFILIATE" means any entity other than a Subsidiary, if the Company
and/or one or more Subsidiaries own not less than 50% of such entity.
2.2 "AWARD" means any award of an Option, an SAR, a Restricted Share or
a Stock Unit under the Plan.
2.3 "BOARD" means the Company's Board of Directors, as constituted from
time to time.
2.4 "CHANGE IN CONTROL" shall mean:
(a) The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization, if
more than 50% of the combined voting power of the continuing or
surviving entity's securities outstanding immediately after such merger,
consolidation or other reorganization is owned by persons who were not
stockholders of the Company immediately prior to such merger,
consolidation or other reorganization;
(b) The sale, transfer or other disposition of all or
substantially all of the Company's assets;
(c) A change in the composition of the Board, as a result of
which fewer than 50% of the incumbent directors are directors who either
(i) had been directors of the Company on the date 24 months prior to the
date of the event that may
A-1
<PAGE> 39
constitute a Change in Control (the "original directors") or (ii) were
elected, or nominated for election, to the Board with the affirmative
votes of at least a majority of the aggregate of the original directors
who were still in office at the time of the election or nomination and
the directors whose election or nomination was previously so approved;
or
(d) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing at
least 20% of the total voting power represented by the Company's then
outstanding voting securities. For purposes of this Paragraph (d), the
term "person" shall have the same meaning as when used in sections 13(d)
and 14(d) of the Exchange Act but shall exclude (i) a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or of a Parent or Subsidiary and (ii) a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of the common
stock of the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
2.5 "CODE" means the Internal Revenue Code of 1986, as amended.
2.6 "COMMITTEE" means a committee of the Board, as described in Article
21.
2.7 "COMMON SHARE" means one share of the common stock of the Company.
2.8 "COMPANY" means Natural Alternatives International, Inc., a Delaware
corporation.
2.9 "CONSULTANT" means a consultant or adviser who provides bona fide
services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1.
2.10 "EMPLOYEE" means a common-law employee of the Company, a Parent, a
Subsidiary or an Affiliate.
2.11 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
2.12 "EXERCISE PRICE," in the case of an Option, means the amount for
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
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2.13 "FAIR MARKET VALUE" means with respect to each Common Share the
last reported sale price of the Company's Common Shares sold on the principal
national securities exchanges on which the Common Shares are at the time
admitted to trading or listed, or, if there have been no sales of any such
exchange on such day, the average of the highest bid and lowest ask price on
such day as reported by the Nasdaq system, or any similar organization if the
Nasdaq is no longer reporting such information, either (i) on the date which the
notice of exercise is deemed to have been sent to the Company (the "Notice
Date") or (ii) over a period of five (5) trading days preceding the Notice Date,
whichever of (i) or (ii) is greater. If on the date for which the current fair
market value is to be determined, the Common Shares are not listed on any
securities exchange or quoted on the Nasdaq system or the over-the-counter
market, the current fair market value of Common Shares shall be the highest
price per share which the Company could then obtain from a willing buyer (not a
current employee or director) for Common Shares sold by the Company, from
authorized but unissued shares, as determined in good faith by the Board of the
Company, unless prior to such date the Company has become subject to a binding
agreement for a merger, acquisition or other consolidation pursuant to which the
Company is not the surviving party, in which case the current fair market value
of the Common Shares shall be deemed to be the value to be received by the
holders of the Company's Common Shares for each share thereof pursuant to the
Company's acquisition. Such determination shall be conclusive and binding on all
persons.
2.14 "ISO" means an incentive stock option described in Section 422(b)
of the Code.
2.15 "NSO" means a stock option not described in Sections 422 or 423 of
the Code.
2.16 "OPTION" means an ISO or NSO granted under the Plan and entitling
the holder to purchase Common Shares.
2.17 "OPTIONEE" means an individual or estate who holds an Option or
SAR.
2.18 "OUTSIDE DIRECTOR" shall mean a member of the Board who is not an
Employee. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 4.1.
2.19 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
2.20 "PARTICIPANT" means an individual or estate who holds an Award.
2.21 "PLAN" means this Natural Alternatives International, Inc. 1999
Omnibus Equity Incentive Plan, as amended from time to time.
2.22 "RESTRICTED SHARE" means a Common Share awarded under the Plan.
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2.23 "RESTRICTED STOCK AGREEMENT" means the agreement between the
Company and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Share.
2.24 "SAR" means a stock appreciation right granted under the Plan.
2.25 "SAR AGREEMENT" means the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.
2.26 "STOCK OPTION AGREEMENT" means the agreement between the Company
and an Optionee that contains the terms, conditions and restrictions pertaining
to his or her Option.
2.27 "STOCK UNIT" means a bookkeeping entry representing the equivalent
of one Common Share, as awarded under the Plan.
2.28 "STOCK UNIT AGREEMENT" means the agreement between the Company and
the recipient of a Stock Unit which contains the terms, conditions and
restrictions pertaining to such Stock Unit.
2.29 "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Options, SARs, Stock Units and Restricted Shares awarded under the Plan shall
not exceed (a) 500,000 plus (b) the additional Common Shares described in
Sections 3.2 and 3.3. The limitation of this Section 3.1 shall be subject to
adjustment pursuant to Article 11.
3.2 ANNUAL INCREASE IN SHARES. As of January 1 of each year, commencing
with the year 2000, the aggregate number of Options, SARs, Stock Units and
Restricted Shares that may be awarded under the Plan shall automatically
increase by a number equal to the lesser of (a) 2.5% of the total number of
Common Shares then outstanding or (b) 100,000 Shares.
3.3 ADDITIONAL SHARES. If Restricted Shares or Common Shares issued upon
the exercise of Options are forfeited, then such Common Shares shall again
become available for Awards under the Plan. If Stock Units, Options or SARs are
forfeited or terminate for any other reason before being exercised, then the
corresponding Common Shares shall again become available for Awards under the
Plan. If Stock Units are settled, then only the number of Common Shares (if any)
actually issued in settlement of such Stock Units shall reduce the number
available under Section 3.1 and the
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balance shall again become available for Awards under the Plan. If SARs are
exercised, then only the number of Common Shares (if any) actually issued in
settlement of such SARs shall reduce the number available under Section 3.1 and
the balance shall again become available for Awards under the Plan. The
foregoing notwithstanding, the aggregate number of Common Shares that may be
issued under the Plan upon the exercise of ISOs shall not be increased when
Restricted Shares or other Common Shares are forfeited.
3.4 DIVIDEND EQUIVALENTS. Any dividend equivalents paid or credited
under the Plan shall not be applied against the number of Restricted Shares,
Stock Units, Options or SARs available for Awards, whether or not such dividend
equivalents are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
4.1 INCENTIVE STOCK OPTIONS. Only Employees who are common-law employees
of the Company, a Parent or a Subsidiary shall be eligible for the grant of
ISOs. In addition, an Employee who owns more than 10% of the total combined
voting power of all classes of outstanding stock of the Company or any of its
Parents or Subsidiaries shall not be eligible for the grant of an ISO only when
the requirements set forth in section 422(c)(6) of the Code are satisfied.
4.2 OTHER GRANTS. Only Employees, Outside Directors and Consultants
shall be eligible for the grant of Restricted Shares, Stock Units, NSOs or SARs
under the Plan.
ARTICLE 5. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The Stock
Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a reduction in
the Optionee's other compensation. A Stock Option Agreement may provide that a
new Option will be granted automatically to the Optionee when he or she
exercises a prior Option and pays the Exercise Price in the form described in
Section 6.2.
5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 11. Options granted to any
Optionee in a single fiscal year of the Company shall not cover more than 50,000
Common Shares, except that Options granted to a new Employee in the fiscal year
of the Company in which his or her service as an Employee first commences may
cover up to 75,000 Common Shares. The limitations set forth in the preceding
sentence shall be subject to adjustment in accordance with Article 11.
5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market
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Value of a Common Share on the date of grant and the Exercise Price under an NSO
shall in no event be less than 85% of the Fair Market Value of a Common Share on
the date of grant.
5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify
the date or event when all or any installment of the Option is to become
exercisable, which may include vesting requirements and/or performance criteria
with respect to the Company and/or the Optionee, provided, however, that an
Option granted to a non-officer Employee shall vest at least 20% of the Common
Shares per year. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service. Options may be awarded in
combination with SARs, and such an Award may provide that the Options will not
be exercisable unless the related SARs are forfeited.
5.5 MANNER OF EXERCISE. An Option shall be deemed exercised when the
Company receives: (i) notice of exercise (in accordance with the Stock Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Common Shares with respect to which the Option is exercised.
Full payment may consist of any consideration and method of payment authorized
by the Committee and permitted by the Stock Option Agreement. Common Shares
issued upon exercise of an Option shall be issued in the name of the Optionee
or, if requested by the Optionee, in the name of the Optionee and his or her
spouse. Until the Common Shares are issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Common Shares subject to the Option,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such Common Shares promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the Common Shares are issued, except as provided in Article
11 of the Plan.
Exercising an Option in any manner shall decrease the number of
Common Shares thereafter available, both for purposes of the Plan and for sale
under the Option, by the number of Common Shares as to which the Option is
exercised.
5.6 EFFECT OF CHANGE IN CONTROL. The Committee may determine, at the
time of granting an Option or thereafter, that such Option shall become
exercisable as to all or part of the Common Shares subject to such Option in the
event that a Change in Control occurs with respect to the Company, subject to
the following limitations:
(a) In the case of an ISO, the acceleration of exercisability
shall not occur without the Optionee's written consent.
(b) If the Company and the other party to the transaction
constituting a Change in Control agree that such transaction is to be
treated as a "pooling of interests" for financial reporting purposes,
and if such transaction in fact is so treated,
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then the acceleration of exercisability shall not occur to the extent
that the Company's independent accountants and such other party's
independent accountants separately determine in good faith that such
acceleration would preclude the use of "pooling of interests"
accounting.
5.7 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations
determined pursuant to the Option Agreement representing such Option.
5.8 BUYOUT PROVISIONS. The Committee may at any time (a) offer to buy
out for a payment in cash or cash equivalents an Option previously granted or
(b) authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of Common Shares issued upon
exercise of Options shall be payable in cash or cash equivalents at the time
when such Common Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall
be made only pursuant to the express provisions of the applicable Stock
Option Agreement. The Stock Option Agreement may specify that payment
may be made in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept
payment in any form(s) described in this Article 6.
6.2 SURRENDER OF STOCK. To the extent that this Section 6.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, Common Shares that are already owned by the
Optionee. Such Common Shares shall be valued at their Fair Market Value on the
date when the new Common Shares are purchased under the Plan. The Optionee shall
not surrender, or attest to the ownership of, Common Shares in payment of the
Exercise Price if such action would cause the Company to recognize compensation
expense (or additional compensation expense) with respect to the Option for
financial reporting purposes.
6.3 NET EXERCISE. Instead of exercising the Option by paying the
Exercise Price in cash, check or other appropriate consideration, the Optionee
may elect to exercise the Option in whole or in part by receiving Common Shares
equal to the value (as determined below) of the Option, or any part hereof, upon
surrender of the Option at the principal office of the Company together with the
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notice of exercise annexed to the Stock Option Agreement in which event the
Company shall issue to the Optionee a number of Common Shares computed using the
following formula:
X=Y(A-B)
------
A
Where X = the number of Common Shares to be issued to the Holder;
Y = the number of Common Shares underlying the Option to be
exercised;
A = the current fair market value of one Common Share; and
B = the Exercise Price of the Option.
As used herein, current fair market value of Common Share shall mean
with respect to each Common Share the last reported sale price of the Company's
Common Shares sold on the principal national securities exchanges on which the
Common Shares are at the time admitted to trading or listed, or, if there have
been no sales of any such exchange on such day, the average of the highest bid
and lowest ask price on such day as reported by the National Association of
Securities Dealers Automated Quotation system ("Nasdaq"), or any similar
organization if the Nasdaq is no longer reporting such information, either (i)
on the date which the notice of exercise is deemed to have been sent to the
Company (the "Notice Date") or (ii) over a period of five (5) trading days
preceding the Notice Date, whichever of (i) or (ii) is greater. If on the date
for which the current fair market value is to be determined, the Common Shares
are not listed on any securities exchange or quoted on the Nasdaq system or the
over-the-counter market, the current fair market value of Common Shares shall be
the highest price per share which the Company could then obtain from a willing
buyer (not a current employee or director) for Common Shares sold by the
Company, from authorized but unissued shares, as determined in good faith by the
Board of the Company, unless prior to such date the Company has become subject
to a binding agreement for a merger, acquisition or other consolidation pursuant
to which the Company is not the surviving party, in which case the current fair
market value of the Common Shares shall be deemed to be the value to be received
by the holders of the Company's Common Shares for each share thereof pursuant to
the Company's acquisition.
6.4 EXERCISE/SALE. To the extent that this Section 6.4 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) an irrevocable direction to a
securities broker approved by the Company to sell all or part of the Common
Shares being purchased under the Plan and to deliver all or part of the sales
proceeds to the Company.
6.5 EXERCISE/PLEDGE. To the extent that this Section 6.5 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) an irrevocable direction to
pledge all or part of the Common Shares being purchased under the Plan to a
securities broker or lender approved by the Company, as security for a loan, and
to deliver all or part of the loan proceeds to the Company.
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6.6 PROMISSORY NOTE. To the extent that this Section 6.6 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) a full-recourse promissory
note. However, the par value of the Common Shares being purchased under the
Plan, if newly issued, shall be paid in cash or cash equivalents.
6.7 OTHER FORMS OF PAYMENT. To the extent that this Section 6.7 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid in any other form that is consistent with applicable laws, regulations
and rules.
ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS.
7.1 INITIAL GRANTS. Each Outside Director who first becomes a member of
the Board shall receive a one-time grant of an NSO covering 10,000 Common Shares
on March 1 of each year (subject to adjustment under Article 11). Such NSO shall
be granted on the date when such Outside Director first joins the Board and
shall become exercisable as to one-third of such 10,000 Common Shares at the end
of each year's anniversary date of such Outside Director's appointment over the
36-month period commencing on the date of grant.
7.2 ANNUAL GRANTS. Upon each March 1 after the Outside Director first
becomes a member of the Board, each Outside Director who continues serving as a
member of the Board thereafter shall receive an NSO covering 10,000 Common
Shares (subject to adjustment under Article 11), except that such NSO shall not
be granted in the calendar year in which the same Outside Director received the
NSO described in Section 7.1. NSOs granted under this Section 7.2 shall become
exercisable as to one-third of said amount on each year's anniversary of the
date of such Outside Director's appointment over a 36-month period.
7.3 ACCELERATED EXERCISABILITY. All NSOs granted to an Outside Director
under this Article 7 shall also become exercisable in full in the event of:
(a) The termination of such Outside Director's service because of
death, total and permanent disability or retirement at or after age 65;
or
(b) A Change in Control with respect to the Company, except as
provided in the next following sentence.
If the Company and the other party to the transaction constituting a Change in
Control agree that such transaction is to be treated as a "pooling of interests"
for financial reporting purposes, and if such transaction in fact is so treated,
then the acceleration of exercisability shall not occur to the extent that the
Company's independent accountants and such other party's independent accountants
separately determine in good faith that such acceleration would preclude the use
of "pooling of interests" accounting.
7.4 EXERCISE PRICE. The Exercise Price under all NSOs granted to an
Outside Director under this Article 7 shall be equal to 100% of the Fair Market
Value of a Common Share on the date of grant, payable in one of the forms
described in Sections 6.1, 6.2, 6.3, 6.4 and 6.5.
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7.5 TERM. All NSOs granted to an Outside Director under this Article 7
shall terminate on the earliest of (a) the 10th anniversary of the date of
grant, (b) the date three months after the termination of such Outside
Director's service for any reason other than death or total and permanent
disability or (c) the date twelve months after the termination of such Outside
Director's service because of death or total and permanent disability.
7.6 AFFILIATES OF OUTSIDE DIRECTORS. The Committee may provide in its
sole discretion that the NSOs that otherwise would be granted to an Outside
Director under this Article 7 shall instead be granted to an affiliate of such
Outside Director. Such affiliate shall then be deemed to be an Outside Director
for purposes of the Plan, provided that the service-related vesting and
termination provisions pertaining to the NSOs shall be applied with regard to
the service of the Outside Director.
ARTICLE 8. STOCK APPRECIATION RIGHTS.
8.1 SAR AGREEMENT. Each grant of an SAR under the Plan shall be
evidenced by an SAR Agreement between the Optionee and the Company. Such SAR
shall be subject to all applicable terms of the Plan and may be subject to any
other terms that are not inconsistent with the Plan. The provisions of the
various SAR Agreements entered into under the Plan need not be identical. SARs
may be granted in consideration of a reduction in the Optionee's other
compensation.
8.2 NUMBER OF SHARES. Each SAR Agreement shall specify the number of
Common Shares to which the SAR pertains and shall provide for the adjustment of
such number in accordance with Article 11. SARs granted to any Optionee in a
single calendar year shall in no event pertain to more than 50,000 Common
Shares, except that SARs granted to a new Employee in the fiscal year of the
Company in which his or her service as an Employee first commences shall not
pertain to more than 75,000 Common Shares. The limitations set forth in the
preceding sentence shall be subject to adjustment in accordance with Article 11.
8.3 EXERCISE PRICE. Each SAR Agreement shall specify the Exercise Price.
An SAR Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the SAR is outstanding.
8.4 EXERCISABILITY AND TERM. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may be
awarded in combination with Options, and such an Award may provide that the SARs
will not be exercisable unless the related Options are forfeited. An SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. An SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
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8.5 EFFECT OF CHANGE IN CONTROL. The Committee may determine, at the
time of granting an SAR or thereafter, that such SAR shall become fully
exercisable as to all Common Shares subject to such SAR in the event that a
Change in Control occurs with respect to the Company, subject to the following
sentence. If the Company and the other party to the transaction constituting a
Change in Control agree that such transaction is to be treated as a "pooling of
interests" for financial reporting purposes, and if such transaction in fact is
so treated, then the acceleration of exercisability shall not occur to the
extent that the Company's independent accountants and such other party's
independent accountants separately determine in good faith that such
acceleration would preclude the use of "pooling of interests" accounting.
8.6 EXERCISE OF SARS. Upon exercise of an SAR, the Optionee (or any
person having the right to exercise the SAR after his or her death) shall
receive from the Company (a) Common Shares, (b) cash or (c) a combination of
Common Shares and cash, as the Committee shall determine. The amount of cash
and/or the Fair Market Value of Common Shares received upon exercise of SARs
shall, in the aggregate, be equal to the amount by which the Fair Market Value
(on the date of surrender) of the Common Shares subject to the SARs exceeds the
Exercise Price. If, on the date when an SAR expires, the Exercise Price under
such SAR is less than the Fair Market Value on such date but any portion of such
SAR has not been exercised or surrendered, then such SAR shall automatically be
deemed to be exercised as of such date with respect to such portion.
8.7 MODIFICATION OR ASSUMPTION OF SARS. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Company or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of an SAR shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.
ARTICLE 9. RESTRICTED SHARES.
9.1 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Shares under
the Plan shall be evidenced by a Restricted Stock Agreement between the
recipient and the Company. Such Restricted Shares shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Restricted Stock
Agreements entered into under the Plan need not be identical.
9.2 PAYMENT FOR AWARDS. Subject to the following sentence, Restricted
Shares may be sold or awarded under the Plan for such consideration as the
Committee may determine, including (without limitation) cash, cash equivalents,
full-recourse promissory notes, past services and future services. To the extent
that an Award consists of newly issued Restricted Shares, the Award recipient
shall furnish consideration with a value not less than the par value of such
Restricted Shares in the form of cash, cash equivalents or past services
rendered to the Company (or a Parent or Subsidiary), as the Committee may
determine.
9.3 VESTING CONDITIONS. Each Award of Restricted Shares may or may not
be subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions
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specified in the Restricted Stock Agreement. A Restricted Stock Agreement may
provide for accelerated vesting in the event of the Participant's death,
disability or retirement or other events. The Committee may determine, at the
time of granting Restricted Shares or thereafter, that all or part of such
Restricted Shares shall become vested in the event that a Change in Control
occurs with respect to the Company, except as provided in the next following
sentence. If the Company and the other party to the transaction constituting a
Change in Control agree that such transaction is to be treated as a "pooling of
interests" for financial reporting purposes, and if such transaction in fact is
so treated, then the acceleration of vesting shall not occur to the extent that
the Company's independent accountants and such other party's independent
accountants separately determine in good faith that such acceleration would
preclude the use of "pooling of interests" accounting.
9.4 VOTING AND DIVIDEND RIGHTS. The holders of Restricted Shares awarded
under the Plan shall have the same voting, dividend and other rights as the
Company's other stockholders. A Restricted Stock Agreement, however, may require
that the holders of Restricted Shares invest any cash dividends received in
additional Restricted Shares. Such additional Restricted Shares shall be subject
to the same conditions and restrictions as the Award with respect to which the
dividends were paid.
9.5 REPURCHASE OPTION. Unless the Committee determines otherwise, the
Restricted Stock Agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment with the Company for any reason (including death or disability). The
purchase price for Common Shares repurchased pursuant to the Restricted Stock
Agreement shall be the original purchase price paid by the purchaser and may be
paid by cancellation of any indebtedness of the purchaser to the Company. The
repurchase option shall lapse at such rate as the Committee may determine, but
at a minimum rate of 20% per year.
ARTICLE 10. STOCK UNITS.
10.1 STOCK UNIT AGREEMENT. Each grant of Stock Units under the Plan
shall be evidenced by a Stock Unit Agreement between the recipient and the
Company. Such Stock Units shall be subject to all applicable terms of the Plan
and may be subject to any other terms that are not inconsistent with the Plan.
The provisions of the various Stock Unit Agreements entered into under the Plan
need not be identical. Stock Units may be granted in consideration of a
reduction in the recipient's other compensation.
10.2 PAYMENT FOR AWARDS. To the extent that an Award is granted in the
form of Stock Units, no cash consideration shall be required of the Award
recipients.
10.3 VESTING CONDITIONS. Each Award of Stock Units may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events. The Committee may
determine, at the time of granting Stock Units or thereafter, that all or part
of such Stock Units shall become vested in the event that a Change in Control
occurs with respect to the Company, except as provided in the next following
sentence. If the Company and the other party to the transaction
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constituting a Change in Control agree that such transaction is to be treated as
a "pooling of interests" for financial reporting purposes, and if such
transaction in fact is so treated, then the acceleration of vesting shall not
occur to the extent that the Company's independent accountants and such other
party's independent accountants separately determine in good faith that such
acceleration would preclude the use of "pooling of interests" accounting.
10.4 VOTING AND DIVIDEND RIGHTS. The holders of Stock Units shall have
no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded
under the Plan may, at the Committee's discretion, carry with it a right to
dividend equivalents. Such right entitles the holder to be credited with an
amount equal to all cash dividends paid on one Common Share while the Stock Unit
is outstanding. Dividend equivalents may be converted into additional Stock
Units. Settlement of dividend equivalents may be made in the form of cash, in
the form of Common Shares, or in a combination of both. Prior to distribution,
any dividend equivalents which are not paid shall be subject to the same
conditions and restrictions as the Stock Units to which they attach.
10.5 FORM AND TIME OF SETTLEMENT OF STOCK UNITS. Settlement of vested
Stock Units may be made in the form of (a) cash, (b) Common Shares or (c) any
combination of both, as determined by the Committee. The actual number of Stock
Units eligible for settlement may be larger or smaller than the number included
in the original Award, based on predetermined performance factors. Methods of
converting Stock Units into cash may include (without limitation) a method based
on the average Fair Market Value of Common Shares over a series of trading days.
Vested Stock Units may be settled in a lump sum or in installments. The
distribution may occur or commence when all vesting conditions applicable to the
Stock Units have been satisfied or have lapsed, or it may be deferred to any
later date. The amount of a deferred distribution may be increased by an
interest factor or by dividend equivalents. Until an Award of Stock Units is
settled, the number of such Stock Units shall be subject to adjustment pursuant
to Article 11.
10.6 DEATH OF RECIPIENT. Any Stock Units Award that becomes payable
after the recipient's death shall be distributed to the recipient's beneficiary
or beneficiaries. Each recipient of a Stock Units Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Company. A beneficiary designation may be changed by filing the
prescribed form with the Company at any time before the Award recipient's death.
If no beneficiary was designated or if no designated beneficiary survives the
Award recipient, then any Stock Units Award that becomes payable after the
recipient's death shall be distributed to the recipient's estate.
10.7 CREDITORS' RIGHTS. A holder of Stock Units shall have no rights
other than those of a general creditor of the Company. Stock Units represent an
unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Stock Unit Agreement.
ARTICLE 11. PROTECTION AGAINST DILUTION.
11.1 ADJUSTMENTS. In the event of a subdivision of the outstanding
Common Shares, a declaration of a dividend payable in Common Shares, a
declaration of a dividend payable in a form other than Common Shares in an
amount that has a material effect on the price of Common Shares,
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a combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise) into a lesser number of Common Shares, a
recapitalization, a spin-off or a similar occurrence, the Committee shall make
such adjustments as it, in its sole discretion, deems appropriate in one or more
of:
(a) The number of Options, SARs, Restricted Shares and Stock
Units available for future Awards under Article 3;
(b) The limitations set forth in Sections 5.2 and 8.2;
(c) The number of NSOs to be granted to Outside Directors under
Article 7;
(d) The number of Common Shares covered by each outstanding
Option and SAR;
(e) The Exercise Price under each outstanding Option and SAR; or
(f) The number of Stock Units included in any prior Award which
has not yet been settled.
Except as provided in this Article 11, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
11.2 DISSOLUTION OR LIQUIDATION. To the extent not previously exercised
or settled, Options, SARs and Stock Units shall terminate immediately prior to
the dissolution or liquidation of the Company.
11.3 REORGANIZATIONS. In the event that the Company is a party to a
merger or other reorganization, outstanding Awards shall be subject to the
agreement of merger or reorganization. Such agreement shall provide for:
(a) The continuation of the outstanding Awards by the Company, if
the Company is a surviving corporation;
(b) The assumption of the outstanding Awards by the surviving
corporation or its parent or subsidiary;
(c) The substitution by the surviving corporation or its parent
or subsidiary of its own awards for the outstanding Awards;
(d) Full exercisability or vesting and accelerated expiration of
the outstanding Awards; or
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(e) Settlement of the full value of the outstanding Awards in
cash or cash equivalents followed by cancellation of such Awards.
ARTICLE 12. DEFERRAL OF AWARDS.
The Committee (in its sole discretion) may permit or require a
Participant to:
(a) Have cash that otherwise would be paid to such Participant as
a result of the exercise of an SAR or the settlement of Stock Units
credited to a deferred compensation account established for such
Participant by the Committee as an entry on the Company's books;
(b) Have Common Shares that otherwise would be delivered to such
Participant as a result of the exercise of an Option or SAR converted
into an equal number of Stock Units; or
(c) Have Common Shares that otherwise would be delivered to such
Participant as a result of the exercise of an Option or SAR or the
settlement of Stock Units converted into amounts credited to a deferred
compensation account established for such Participant by the Committee
as an entry on the Company's books. Such amounts shall be determined by
reference to the Fair Market Value of such Common Shares as of the date
when they otherwise would have been delivered to such Participant.
A deferred compensation account established under this Article 12 may be
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Company. Such an account
shall represent an unfunded and unsecured obligation of the Company and shall be
subject to the terms and conditions of the applicable agreement between such
Participant and the Company. If the deferral or conversion of Awards is
permitted or required, the Committee (in its sole discretion) may establish
rules, procedures and forms pertaining to such Awards, including (without
limitation) the settlement of deferred compensation accounts established under
this Article 12.
ARTICLE 13. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such awards
may be settled in the form of Common Shares issued under this Plan. Such Common
Shares shall be treated for all purposes under the Plan like Common Shares
issued in settlement of Stock Units and shall, when issued, reduce the number of
Common Shares available under Article 3.
ARTICLE 14. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
14.1 EFFECTIVE DATE. No provision of this Article 14 shall be effective
unless and until the Board has determined to implement such provision.
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14.2 ELECTIONS TO RECEIVE NSOs, RESTRICTED SHARES OR STOCK UNITS. An
Outside Director may elect to receive his or her annual retainer payments and/or
meeting fees from the Company in the form of cash, NSOs, Restricted Shares or
Stock Units, or a combination thereof, as determined by the Board. Such NSOs,
Restricted Shares and Stock Units shall be issued under the Plan. An election
under this Article 14 shall be filed with the Company on the prescribed form.
14.3 NUMBER AND TERMS OF NSOs, RESTRICTED SHARES OR STOCK UNITS. The
number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise be
paid in cash shall be calculated in a manner determined by the Board. The terms
of such NSOs, Restricted Shares or Stock Units shall also be determined by the
Board.
ARTICLE 15. LIMITATION ON RIGHTS.
15.1 RETENTION RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant. The Company and its Parents, Subsidiaries and
Affiliates reserve the right to terminate the service of any Employee, Outside
Director or Consultant at any time, with or without cause, subject to applicable
laws, the Company's certificate of incorporation and by-laws and a written
employment agreement (if any).
15.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the time when a stock certificate for such
Common Shares is issued or, if applicable, the time when he or she becomes
entitled to receive such Common Shares by filing any required notice of exercise
and paying any required Exercise Price. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to such time,
except as expressly provided in the Plan.
15.3 CONDITIONS UPON ISSUANCE OF COMMON SHARES.
(a) LEGAL COMPLIANCE. Common Shares shall not be issued pursuant
to the exercise of an Award unless the exercise of such Award and the issuance
and delivery of such Common Shares shall comply with all relevant provisions of
law, including, without limitation, the Securities Act, as amended, the Exchange
Act, the securities laws of applicable states, the rules and regulations
promulgated thereunder, applicable laws, and the requirements of any stock
exchange or quotation system upon which the Common 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
Common Shares underlying the Awards, as of the date the Plan was approved by the
Board, have not been registered under the Securities Act. The Participant shall
be required to represent that if Awards are exercised in whole or in part at a
time when there is not in effect, under the Securities Act, a registration
statement applicable to the Common Shares issuable upon exercise, then the
purchase
A-16
<PAGE> 54
of such Common Shares shall be subject to obtaining such representation,
warranties and covenants from the Participants as the Committee shall determine,
including:
(i) INVESTMENT INTENT. Participant is acquiring the Common
Shares for its own account, not as a nominee or agent, and not with a view to
their resale or distribution and is prepared to hold the Common Shares for an
indefinite period and has no present intention to sell, distribute, or grant any
participating interests in the Common Shares. Participant acknowledges the
Common Shares have not been registered under the Securities Act or the
securities laws of any other state, province or country (collectively, with the
1933 Act, the "Securities Laws"), and that the Company is issuing the Common
Shares to it in reliance on such representations.
(ii) RESTRICTED SECURITIES. Participant confirms it has
been informed that the Common Shares may not be resold or transferred unless
such Common Shares are first registered under the applicable Securities Laws or
unless an exemption from such registration is available.
(iii) INVESTMENT EXPERIENCE. In connection with the
investment representations made, Participant represents that it is able to fend
for itself in the transactions contemplated by the Plan, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment, has the ability to bear the economic risks
of its investment, and has been furnished with and has had access to such
information as is normally made available in the form of a registration
statement, together with such additional information as is necessary to verify
the accuracy of the information supplied and to have all questions answered by
the Company.
(iv) DISPOSITION OF SHARES. Participant shall make no
disposition of the Common Shares, unless and until:
(1) Participant shall have complied with all
requirements of the Plan and any stock exchange on which such Common
Shares (or any substituted securities) may be listed;
(2) Participant shall have notified the Company of
the proposed disposition and furnished it with a written summary of the
terms and conditions of the proposed disposition; and
(3) Participant shall have provided an opinion to
the Company's counsel (at its expense), in form and substance reasonably
satisfactory to the Company, that (i) the proposed disposition does not
require registration of the Common Shares under the applicable
Securities Laws or (ii) all appropriate action necessary for compliance
with the registration requirements of the applicable Securities Laws or
of any exemption from registration available under the applicable
Securities Laws has been taken.
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ARTICLE 16. WITHHOLDING TAXES.
16.1 GENERAL. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
16.2 SHARE WITHHOLDING. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any Common Shares that otherwise
would be issued to him or her or by surrendering all or a portion of any Common
Shares that he or she previously acquired. Such Common Shares shall be valued at
their Fair Market Value on the date when taxes otherwise would be withheld in
cash.
ARTICLE 17. FUTURE OF THE PLAN.
17.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on May 10, 1999. The Plan shall remain in effect until it is
terminated under Section 17.2, except that no ISOs shall be granted on or after
the 10th anniversary of the later of (a) the date when the Board adopted the
Plan or (b) the date when the Board adopted the most recent increase in the
number of Common Shares available under Article 3 which was approved by the
Company's stockholders.
17.2 AMENDMENT OR TERMINATION. The Board may at any time amend, alter,
suspend or terminate the Plan for any reason.
17.3 STOCKHOLDER APPROVAL. The Company shall obtain stockholder approval
of any Plan amendment to the extent requested by applicable law, rule or
regulation, including the requirements of any exchange or quotation system on
which the Common Shares are listed or quoted. Such stockholder approval, if
required shall be obtained in such a manner and to such a degree as is required
by the applicable laws, rules or regulations.
17.4 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 Board, which
agreement must be in writing and signed by the Optionee and the Company unless
such amendment, alteration, suspension or termination is required to enable an
Option designated as an Incentive Stock Option to qualify as a Nonqualified
Stock Option or is necessary to comply with any applicable laws or government
regulations.
ARTICLE 18. LIMITATION ON PARACHUTE PAYMENTS.
18.1 SCOPE OF LIMITATION. This Article 18 shall apply to an Award unless
the Committee, at the time of making an Award under the Plan or at any time
thereafter, specifies in writing that such Award shall not be subject to this
Article 18. If this Article 18 applies to an Award, it shall supersede any
contrary provision of the Plan or of any Award granted under the Plan.
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18.2 BASIC RULE. In the event that the independent auditors most
recently selected by the Board (the "Auditors") determine that any payment or
transfer by the Company under the Plan to or for the benefit of a Participant (a
"Payment") would be nondeductible by the Company for federal income tax purposes
because of the provisions concerning "excess parachute payments" in Section 280G
of the Code, then the aggregate present value of all Payments shall be reduced
(but not below zero) to the Reduced Amount. For purposes of this Article 18, the
"Reduced Amount" shall be the amount, expressed as a present value, which
maximizes the aggregate present value of the Payments without causing any
Payment to be nondeductible by the Company because of Section 280G of the Code.
18.3 REDUCTION OF PAYMENTS. If the Auditors determine that any Payment
would be nondeductible by the Company because of Section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within 10 days of receipt
of notice. If no such election is made by the Participant within such 10-day
period, then the Company may elect which and how much of the Payments shall be
eliminated or reduced (as long as after such election the aggregate present
value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 18, present
value shall be determined in accordance with Section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Article 18 shall be binding upon
the Company and the Participant and shall be made within 60 days of the date
when a Payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
or transfer to or for the benefit of the Participant such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Participant in the future such amounts as become due to him
or her under the Plan.
18.4 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty in the
application of Section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company that should not have been made (an "Overpayment") or that additional
Payments that will not have been made by the Company could have been made (an
"Underpayment"), consistent in each case with the calculation of the Reduced
Amount hereunder. In the event that the Auditors, based upon the assertion of a
deficiency by the Internal Revenue Service against the Company or the
Participant that the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
Section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such payment
would not reduce the amount subject to taxation under Section 4999 of the Code.
In the event that the Auditors determine that an Underpayment has occurred, such
Underpayment shall promptly be paid or transferred by the Company to or for the
benefit of the Participant, together with interest at the applicable federal
rate provided in Section 7872(f)(2) of the Code.
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<PAGE> 57
18.5 RELATED CORPORATIONS. For purposes of this Article 18, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with Section 280G(d)(5) of the Code.
ARTICLE 19. INDEMNIFICATION.
In addition to such other rights of indemnification as they may have as
members of the Board or officers or employees of the Company and any Parent or
Subsidiary, members of the Committee and any officers or employees of the
Company and any Parent or Subsidiary to whom authority to act for the Board is
delegated shall be indemnified by the Company against all reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they 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 right
granted hereunder, 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 in 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 gross
negligence, bad faith or intentional misconduct in duties; provided, however,
that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity
at its own expense to handle and defend the same.
ARTICLE 20. PROVISION OF INFORMATION.
At least annually, copies of the Company's annual report or Form 10-K
for the just-completed fiscal year shall be made available to each Participant
and purchaser of Common Shares upon exercise of an Award. The Company shall not
be required to provide such information to key employees whose duties in
connection with the Company assure them access to equivalent information.
ARTICLE 21. ADMINISTRATION.
21.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy:
(a) Such requirements as the Securities and Exchange Commission
may establish for administrators acting under plans intended to qualify
for exemption under Rule 16b-3 (or its successor) under the Exchange
Act; and
(b) Such requirements as the Internal Revenue Service may
establish for outside directors acting under plans intended to qualify
for exemption under section 162(m)(4)(C) of the Code.
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21.2 POWERS OF THE COMMITTEE. Subject to the provisions of the Plan,
and, subject to the specific duties delegated by the Board to such Committee,
the Committee shall have the authority, in its discretion:
(a) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2 of the Plan;
(b) to select the Consultants and Employees to whom Awards may be
granted hereunder;
(c) to determine whether and to what extent Awards or any
combination thereof are granted hereunder;
(d) to determine the number of Common Shares to be covered by
each Award granted hereunder;
(e) to approve forms of agreement for use under the Plan;
(f) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time
or times when Awards may be exercised (which may be based on performance
criteria), any vesting, acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Awards or
the Common Shares relating thereto, based in each case on such factors
as the Committee, in its sole discretion, shall determine;
(g) to construe and interpret the terms of the Plan;
(h) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(i) to determine whether and under what circumstances an Award
may be settled in cash instead of Common Shares or Common Shares instead
of cash;
(j) to reduce the exercise price of any Award;
(k) to modify or amend each Award (subject to Section 17 of the
Plan);
(l) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Award previously
granted by the Board;
(m) to determine the terms and restrictions applicable to Awards
and any Restricted Stock; and
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(n) to make all other determinations deemed necessary or
advisable for administering the Plan.
21.3 COMMITTEE FOR NON-OFFICER GRANTS. The Board may also appoint a
secondary committee of the Board, which shall be composed of one or more
directors of the Company who need not satisfy the requirements of Section 21.1.
Such secondary committee may administer the Plan with respect to Employees and
Consultants who are not considered officers or directors of the Company under
section 16 of the Exchange Act, may grant Awards under the Plan to such
Employees and Consultants and may determine all features and conditions of such
Awards. Within the limitations of this Section 21.3, any reference in the Plan
to the Committee shall include such secondary committee.
ARTICLE 22. EXECUTION.
To record the adoption of the Plan by the Board, the Company has caused
its duly authorized officer to execute this document in the name of the Company.
Natural Alternatives International, Inc.
By: /s/ Mark LeDoux
--------------------------------------------
Mark LeDoux, Chief Executive Officer
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<PAGE> 60
EXHIBIT B
<PAGE> 61
EXHIBIT B
--------------------------------------
NATURAL ALTERNATIVES INTERNATIONAL, INC.
1999 EMPLOYEE STOCK
PURCHASE PLAN
(AS ADOPTED EFFECTIVE
OCTOBER 18, 1999)
--------------------------------------
<PAGE> 62
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. PURPOSE OF THE PLAN ....................................................... B-1
SECTION 2. ADMINISTRATION OF THE PLAN ................................................ B-1
SECTION 3. ENROLLMENT AND PARTICIPATION .............................................. B-2
(a) Offering Periods ....................................................... B-2
(b) Enrollment ............................................................. B-2
(c) Duration of Participation .............................................. B-2
SECTION 4. EMPLOYEE CONTRIBUTIONS .................................................... B-2
(a) Frequency of Payroll Deductions ........................................ B-2
(b) Amount of Payroll Deductions ........................................... B-3
(c) Changing Withholding Rate .............................................. B-3
(d) Discontinuing Payroll Deductions ....................................... B-3
(e) Limit on Number of Elections ........................................... B-3
SECTION 5. WITHDRAWAL FROM THE PLAN .................................................. B-3
(a) Withdrawal ............................................................. B-3
(b) Re-enrollment After Withdrawal ......................................... B-3
SECTION 6. CHANGE IN EMPLOYMENT STATUS ............................................... B-3
(a) Termination of Employment .............................................. B-3
(b) Leave of Absence ....................................................... B-3
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES ...................................... B-4
(a) Plan Accounts .......................................................... B-4
(b) Purchase Price ......................................................... B-4
(c) Number of Shares Purchased ............................................. B-4
(d) Available Shares Insufficient .......................................... B-4
(e) Issuance of Stock ...................................................... B-5
(f) Unused Cash Balances ................................................... B-5
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP ............................................ B-5
(a) Five Percent Limit ..................................................... B-5
(b) Dollar Limit ........................................................... B-5
SECTION 9. RIGHTS NOT TRANSFERABLE ................................................... B-6
SECTION 10. NO RIGHTS AS AN EMPLOYEE ................................................. B-6
SECTION 11. NO RIGHTS AS A STOCKHOLDER ............................................... B-6
</TABLE>
B-i
<PAGE> 63
<TABLE>
<S> <C>
SECTION 12. SECURITIES LAW REQUIREMENTS .............................................. B-6
SECTION 13. STOCK OFFERED UNDER THE PLAN ............................................. B-6
(a) Authorized Shares ...................................................... B-6
(b) Antidilution Adjustments ............................................... B-7
(c) Reorganizations ........................................................ B-7
SECTION 14. AMENDMENT OR DISCONTINUANCE .............................................. B-7
SECTION 15. EFFECTIVE DATE AND TERM OF THE PLAN ...................................... B-8
SECTION 16. DESIGNATION OF BENEFICIARY ............................................... B-8
SECTION 17. CHOICE OF LAW ............................................................ B-9
SECTION 18. DEFINITIONS .............................................................. B-9
(a) "Board" ................................................................ B-9
(b) "Code" ................................................................. B-9
(c) "Committee" ............................................................ B-9
(d) "Company" .............................................................. B-9
(e) "Compensation" ......................................................... B-9
(f) "Corporate Reorganization" ............................................. B-9
(g) "Eligible Employee" .................................................... B-9
(h) "Exchange Act" ......................................................... B-10
(i) "Fair Market Value" .................................................... B-10
(j) "Offering Period" ...................................................... B-10
(k) "Participant" .......................................................... B-10
(l) "Participating Company" ................................................ B-10
(m) "Plan" ................................................................. B-10
(n) "Plan Account" ......................................................... B-10
(o) "Purchase Price" ....................................................... B-10
(p) "Stock" ................................................................ B-11
(q) "Subsidiary" ........................................................... B-11
SECTION 19. EXECUTION ................................................................ B-11
</TABLE>
B-ii
<PAGE> 64
NATURAL ALTERNATIVES INTERNATIONAL, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The purpose of the Plan is to provide Eligible Employees with an
opportunity to increase their proprietary interest in the success of the Company
by purchasing Stock from the Company on favorable terms and to pay for such
purchases through payroll deductions. The Company, by means of the Plan, seeks
to retain the services of its employees to secure and retain the services of new
employees, and to provide incentives for such persons to exert maximum efforts
for the success of the Company. The Plan is intended to qualify under Section
423 of the Code. Defined terms have the meanings set forth in Section 18 herein.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase shares of Stock
of the Company shall be granted and the provisions of each offering of such
rights (which need not be identical).
(ii) To designate from time to time which Participating Company's
of the Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 14.
(v) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company and its Participating Company's and to carry out the intent that the
Plan be treated as an "employee stock purchase plan" within the meaning of
Section 423 of the Code.
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(c) The Board may delegate administration of the Plan to a Committee
composed of one (1) or more members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(d) Any interpretation of the Plan by the Board of any decision made by
it under the Plan shall be final and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) OFFERING PERIODS. While the Plan is in effect, two Offering Periods
shall commence in each calendar year except as set forth herein. The Offering
Periods shall consist of the six-month periods commencing on each January 1 and
July 1, provided, however the first two Offering Periods under the Plan shall
consist of three-month periods, with the first Offering Period commencing on
January 1, 2000 and ending on March 31, 2000 and the second Offering Period
commencing on April 1, and ending on June 30, 2000. The Board shall have the
power to change the duration of the Offering Periods (including the commencement
dates thereof) with respect to all offerings after the first Offering Period
without stockholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Offering Period to be affected
thereafter.
(b) ENROLLMENT. Any individual who, on the day preceding the first day
of an Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Board. The enrollment form shall be
filed with the Company at the prescribed location not later than ten (10) days
prior to the commencement of such Offering Period.
(c) DURATION OF PARTICIPATION. Once enrolled in the Plan, a Participant
shall continue to participate in the Plan until he or she ceases to be an
Eligible Employee, withdraws from the Plan under Section 5(a) or reaches the end
of the Offering Period in which his or her employee contributions were
discontinued under Section 4(d) or 8(b). A Participant who discontinued employee
contributions under Section 4(d) or withdrew from the Plan under Section 5(a)
may again become a Participant, if he or she then is an Eligible Employee, by
following the procedure described in Subsection (b) above. A Participant whose
employee contributions were discontinued automatically under Section 8(b) shall
automatically resume participation at the beginning of the earliest Offering
Period ending in the next calendar year, if he or she then is an Eligible
Employee.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) FREQUENCY OF PAYROLL DEDUCTIONS. A Participant may purchase shares
of Stock under the Plan solely by means of payroll deductions. Payroll
deductions, as designated by the Participant pursuant to Subsection (b) below,
shall occur on each payday during participation in the Plan.
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(b) AMOUNT OF PAYROLL DEDUCTIONS. An Eligible Employee shall designate
on the enrollment form the portion of his or her Compensation that he or she
elects to have withheld for the purchase of Stock. Such portion shall be a whole
percentage of the Eligible Employee's Compensation, but not less than one
percent (1%) nor more than fifteen percent (15%).
(c) CHANGING WITHHOLDING RATE. If a Participant wishes to change the
rate of payroll withholding, he or she may do so by filing a new enrollment form
with the Company at the prescribed location at any time. The new withholding
rate shall be effective as soon as reasonably practicable after such form has
been received by the Company. The new withholding rate shall be a whole
percentage of the Eligible Employee's Compensation, but not less than one
percent (1%) nor more than fifteen percent (15%).
(d) DISCONTINUING PAYROLL DEDUCTIONS. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Company at the prescribed location at any time. Payroll
withholding shall cease as soon as reasonably practicable after such form has
been received by the Company. (In addition, employee contributions may be
discontinued automatically pursuant to Section 8(b).) A Participant who has
discontinued employee contributions may resume such contributions by filing a
new enrollment form with the Company at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Company.
(e) LIMIT ON NUMBER OF ELECTIONS. No Participant shall make more than
one election under Subsection (c) or (d) above during any Offering Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) WITHDRAWAL. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Company at the prescribed location at any
time before the last day of an Offering Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.
(b) RE-ENROLLMENT AFTER WITHDRAWAL. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls in
the Plan under Section 3(c). Re-enrollment may be effective only at the
commencement of an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) TERMINATION OF EMPLOYMENT. Termination of employment as an Eligible
Employee for any reason, including death, shall be treated as an automatic
withdrawal from the Plan under Section 5(a). (A transfer from one Participating
Company to another shall not be treated as a termination of employment.)
(b) LEAVE OF ABSENCE. For purposes of the Plan, employment shall not be
deemed to terminate when the Participant goes on a military leave, a sick leave
or another bona fide leave of
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absence, if the leave was approved by the Company in writing. Employment,
however, shall be deemed to terminate 90 days after the Participant goes on a
leave, unless a contract or statute guarantees his or her right to return to
work. Employment shall be deemed to terminate in any event when the approved
leave ends, unless the Participant immediately returns to work.
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) PLAN ACCOUNTS. The Company shall maintain a Plan Account on its
books in the name of each Participant. Whenever an amount is deducted from the
Participant's Compensation under the Plan, such amount shall be credited to the
Participant's Plan Account. Amounts credited to Plan Accounts shall not be trust
funds and may be commingled with the Company's general assets and applied to
general corporate purposes. No interest shall be credited to Plan Accounts.
(b) PURCHASE PRICE. The Purchase Price for each share of Stock purchased
at the close of an Offering Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last
trading day in such Offering Period; or
(ii) 85% of the Fair Market Value of such share on the first
trading day on the commencement of such Offering Period.
(c) NUMBER OF SHARES PURCHASED. As of the last day of each Offering
Period, each Participant shall be deemed to have elected to purchase the number
of shares of Stock calculated in accordance with this Subsection (c), unless the
Participant has previously elected to withdraw from the Plan in accordance with
Section 5(a). The amount then in the Participant's Plan Account shall be divided
by the Purchase Price, and the number of shares that results shall be purchased
from the Company with the funds in the Participant's Plan Account. The foregoing
notwithstanding, no Participant shall purchase more than 5,000 shares of Stock
with respect to any Offering Period nor more than the amounts of Stock set forth
in Sections 8(b) and 13(a). However, the Board shall have the discretionary
authority exercisable prior to the start of any Offering Period under the Plan,
to increase or decrease the limitation to be in effect for the number of shares
of Stock purchased per Participant and in the aggregate by all Participants on
the last day of each Offering Period. The Board may determine with respect to
all Participants that any fractional share, as calculated under this Subsection
(c), shall be (i) rounded down to the next lower whole share or (ii) credited as
a fractional share.
(d) AVAILABLE SHARES INSUFFICIENT. In the event that the aggregate
number of shares that all Participants elect to purchase during an Offering
Period exceeds the maximum number of shares remaining available for issuance
under Section 13(a), then the number of shares to which each Participant is
entitled shall be determined by multiplying the number of shares available for
issuance by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
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(e) ISSUANCE OF STOCK. Certificates representing the shares of Stock
purchased by a Participant under the Plan shall be issued to him or her as soon
as reasonably practicable after the close of the applicable Offering Period,
except that the Board may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Board (unless the
Participant has elected that certificates be issued to him or her). Shares may
be registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property.
(f) UNUSED CASH BALANCES. Any amount remaining in the Participant's Plan
Account that represents the Purchase Price for a fractional share shall be
carried over in the Participant's Plan Account to the next Offering Period. Any
amount remaining in the Participant's Plan Account that represents the Purchase
Price for whole shares that could not be purchased by reason of Subsection (c)
above, Section 8(b) or Section 13(a) shall be refunded to the Participant in
cash, without interest.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) FIVE PERCENT LIMIT. Any other provision of the Plan notwithstanding,
no Participant shall be granted a right to purchase Stock under the Plan if such
Participant, immediately after his or her election to purchase such Stock, would
own stock possessing more than 5% of the total combined voting power or value of
all classes of stock of the Company or any parent or Subsidiary of the Company.
For purposes of this Subsection (a), the following rules shall apply:
(i) Ownership of stock shall be determined after applying the
attribution rules of Section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he or
she has a right or option to purchase under this or any other plan; and
(iii) Each Participant shall be deemed to have the right to
purchase 5,000 shares of Stock under this Plan with respect to each Offering
Period.
(b) DOLLAR LIMIT. Any other provision of the Plan notwithstanding, no
Participant shall purchase Stock with a Fair Market Value in excess of the
following limit:
Any other provision of the Plan notwithstanding, no Participant shall
purchase Stock with a Fair Market Value in excess of $25,000 per calendar year
(under this Plan and all other employee stock purchase plans of the Company or
any parent or Subsidiary of the Company).
For purposes of this Subsection (b), the Fair Market Value of Stock
shall be determined in each case as of the beginning of the Offering Period in
which such Stock is purchased. Employee stock purchase plans not described in
Section 423 of the Code shall be disregarded. If a Participant is precluded by
this Subsection (b) from purchasing additional Stock under the Plan, then his or
her employee contributions shall automatically be discontinued and shall resume
at the beginning of the earliest Offering Period ending in the next calendar
year (if he or she then is an Eligible Employee).
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SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's
interest in any Stock or moneys, including payroll deductions credited to a
Participant's account, to which he or she may be entitled under the Plan, shall
not be transferable by voluntary or involuntary assignment or by operation of
law, or in any other manner other than by beneficiary designation or the laws of
descent and distribution. If a Participant in any manner attempts to transfer,
assign or otherwise encumber his or her rights or interest under the Plan, other
than by beneficiary designation or the laws of descent and distribution, then
such act shall be treated as an election by the Participant to withdraw from the
Plan under Section 5(a).
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Company for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Companies or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.
SECTION 11. NO RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to any
shares of Stock that he or she may have a right to purchase under the Plan until
such shares have been purchased on the last day of the applicable Offering
Period.
SECTION 12. SECURITIES LAW REQUIREMENTS.
Shares of Stock shall not be issued under the Plan unless the issuance
and delivery of such shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the Exchange Act, the rules and regulations promulgated thereunder,
state securities laws and regulations, and the regulations of any stock exchange
or other securities market on which the Company's securities may then be traded.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Stock is being purchased only for investment and without any
present intention to sell or distribute such Stock if, in the opinion of counsel
for the Company, such a representation is required by any of the aforementioned
applicable provisions of law.
SECTION 13. STOCK OFFERED UNDER THE PLAN.
(a) AUTHORIZED SHARES. Subject to adjustment pursuant to this Section
13, the aggregate number of shares of Stock available for purchase under the
Plan shall be 150,000 plus an annual increase to be added on the first day of
the Company's fiscal year beginning with July 1, 2000, equal to the lesser of
(i) 150,000 shares, (ii) two percent (2%) of the total number of outstanding
shares
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of Stock on the last trading day of the prior fiscal year, or (iii) such amount
as determined by the Board.
(b) ANTIDILUTION ADJUSTMENTS. The aggregate number of shares of Stock
offered under the Plan, the 5,000-share limitation described in Section 7(c) and
the price of shares that any Participant has elected to purchase shall be
adjusted proportionately by the Board for any increase or decrease in the number
of outstanding shares of Stock resulting from a subdivision or consolidation of
shares or the payment of a stock dividend, any other increase or decrease in
such shares effected without receipt or payment of consideration by the Company,
the distribution of the shares of a Subsidiary to the Company's stockholders or
a similar event.
(c) REORGANIZATIONS. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period then in progress shall terminate and shares shall be purchased
pursuant to Section 7, unless the Plan is assumed by the surviving corporation
or its parent corporation pursuant to the plan of merger or consolidation. The
Plan shall in no event be construed to restrict in any way the Company's right
to undertake a dissolution, liquidation, merger, consolidation or other
reorganization.
SECTION 14. AMENDMENT OR DISCONTINUANCE.
(a) The Board at any time, and from time to time, may alter, amend,
suspend or terminate the Plan or the terms of the grant of rights to purchase
Stock under the Plan without notice. However, except as provided in paragraph 13
relating to adjustments upon changes in stock, no amendment shall be effective
unless approved by the stockholders of the Company within twelve (12) months
before or after the adoption of the amendment, where the amendment will:
(i) increase the number of shares of Stock reserved for rights
under the Plan except as provided for in Section 13(a);
(ii) modify the provisions as to eligibility for participation in
the Plan or an Offering Period (to the extent such modification requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the requirements
of Rule 16b-3 promulgated under the Exchange Act, or any comparable successor
rule ("Rule 16b-3"); or
(iii) modify the Plan or an Offering Period in any other way if
such modification requires stockholder approval in order for the Plan to obtain
employee stock purchase plan treatment under Section 423 of the Code or to
comply with the requirements of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan or an
Offering Period in any respect the Board deems necessary or advisable to provide
eligible employees with the maximum benefits provided or to be provided under
the provisions of the Code and the regulations promulgated thereunder relating
to employee stock purchase plans and/or to bring the Plan and/or rights granted
under an Offering Period into compliance therewith.
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(b) The Board may, in its sole discretion, submit any amendment to the
Plan or an Offering Period for stockholder approval.
(c) Rights and obligations under any rights granted before amendment of
the Plan or an Offering Period shall not be impaired by any amendment of the
Plan, except with the consent of the person to whom such rights were granted, or
except as necessary to comply with any laws or governmental regulations, or
except as necessary to ensure that the Plan and/or rights granted under an
Offering Period comply with the requirements of Section 423 of the Code.
SECTION 15. EFFECTIVE DATE AND TERM OF THE PLAN.
(a) The Plan was adopted by the Board and became effective on October
18, 1999, provided no rights to purchase shares of Stock granted under the Plan
shall be exercised, and no shares of Stock shall be issued hereunder, until the
Plan shall have been approved by the stockholders of the Company. In the event
such stockholder approval is not obtained, within twelve (12) months after the
date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
(b) Unless sooner terminated by the Board, the Plan shall terminate upon
the earliest of (i) October 18, 2009, (ii) the date which all shares available
for issuance under the Plan shall have been sold pursuant to purchase rights
exercised under the Plan, or (iii) the date on which all purchase rights are
exercised in connection with a Corporate Reorganization. No further purchase
rights shall be granted or exercised, and no further payroll deductions shall be
collected, under the Plan following such termination.
SECTION 16. DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a beneficiary who is
to receive any shares of Stock and cash, if any, from the Participant's Plan
Account under the Plan in the event of such Participant's death subsequent to
the last trading day of each Offering Period on which the right to purchase
Stock is exercised but prior to delivery to such Participant of such shares of
Stock and cash. In addition, a Participant may file a written designation of a
beneficiary who is to receive any cash from the Participant's Plan Account under
the Plan in the event of such Participant's death prior to exercise of the right
to purchase Stock. If a Participant is married and the designated beneficiary is
not the spouse, spousal consent shall be required for such designation to be
effective.
(b) Such designation of beneficiary may be changed by the Participant at
any time by written notice. In the event of the death of a Participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such Participant's death, the Company shall deliver such shares of
Stock and/or cash to the executor or administrator of the estate of the
Participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its discretion, may deliver such
shares of Stock and/or cash to the spouse or to any one or more dependents or
relatives of the Participant or, if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
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SECTION 17. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.
SECTION 18. DEFINITIONS.
(a) "BOARD" means the Board of Directors of the Company, as constituted
from time to time.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" means a committee of the Board, as described in Section
2.
(d) "COMPANY" means Natural Alternatives International, Inc., a Delaware
corporation.
(e) "COMPENSATION" means (i) the total compensation paid in cash to a
Participant by a Participating Company, including salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax contributions made by the Participant under section 401(k) or 125 of
the Code. "Compensation" shall exclude all non-cash items, moving or relocation
allowances, cost-of-living equalization payments, car allowances, tuition
reimbursements, imputed income attributable to cars or life insurance, severance
pay, fringe benefits, contributions or benefits received under employee benefit
plans, income attributable to the exercise of stock options, and similar items.
The Committee shall determine whether a particular item is included in
Compensation.
(f) "CORPORATE REORGANIZATION" means:
(i) The consummation of a merger or consolidation of the Company
with or into another entity, or any other corporate reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets or the complete liquidation or
dissolution of the Company.
(g) "ELIGIBLE EMPLOYEE" means any employee of a Participating Company
who meets both of the following requirements:
(i) His or her customary employment is for more than five months
per calendar year and for more than 20 hours per week; and
(ii) He or she has been an employee of a Participating Company
for not less than three (3) consecutive months.
The foregoing notwithstanding, an individual shall not be considered an
Eligible Employee if his or her participation in the Plan is prohibited by the
law of any country which has jurisdiction
B-9
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over him or her or if he or she is subject to a collective bargaining agreement
that does not provide for participation in the Plan.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(i) "FAIR MARKET VALUE" means the market price of Stock, determined by
the Committee as follows:
(i) If Stock was traded on The Nasdaq National Market on the date
in question, then the Fair Market Value shall be equal to the last-transaction
price quoted for such date by The Nasdaq National Market;
(ii) If Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; or
(iii) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the
Committee shall be based on the prices reported in the Wall Street Journal or as
reported directly to the Company by Nasdaq or a stock exchange. Such
determination shall be conclusive and binding on all persons.
(j) "OFFERING PERIOD" means, except with respect to the first two
Offering Periods, a six-month period with respect to which the right to purchase
Stock may be granted under the Plan, as determined pursuant to Section 3(a),
provided, however, the first two Offering Periods shall consist of three-month
periods, with the first Offering Period commencing on January 1, 2000 and ending
on March 31, 2000 and the second Offering Period commencing on April 1, 2000 and
ending on June 30, 2000. The duration and timing of Offering Periods may be
changed pursuant to Section 3 of this Plan.
(k) "PARTICIPANT" means an Eligible Employee who elects to participate
in the Plan, as provided in Section 3(b).
(l) "PARTICIPATING COMPANY" means (i) the Company and (ii) each present
or future Subsidiary designated by the Committee as a Participating Company.
(m) "PLAN" means this Natural Alternatives International, Inc. 1999
Employee Stock Purchase Plan, as it may be amended from time to time.
(n) "PLAN ACCOUNT" means the account established for each Participant
pursuant to Section 7(a).
(o) "PURCHASE PRICE" means the price at which Participants may purchase
Stock under the Plan, as determined pursuant to Section 7(b).
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(p) "STOCK" means the Common Stock of the Company.
(q) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
SECTION 19. EXECUTION.
To record the adoption of the Plan by the Board on October 18, 1999, the
Company has caused its authorized officer to execute the same.
Natural Alternatives International, Inc.
By: /s/ Mark LeDoux
--------------------------------------------
Mark LeDoux, Chief Executive Officer
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NATURAL ALTERNATIVES INTERNATIONAL, INC.
A DELAWARE CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 6, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Mark A. LeDoux and R. David Lough as
proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and vote, as designated on the reverse hereof, all of the
shares of Common Stock of Natural Alternatives International, Inc., held of
record by the undersigned on October 20, 1999, at the Annual Meeting of
Stockholders to be held on December 6, 1999, or any adjournment thereof.
(Please date and sign on the other side)
FOLD AND DETACH HERE
<PAGE> 76
Please mark
your votes as [X]
indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE
TWO NOMINEES FOR CLASS II DIRECTOR, FOR THE ELECTION OF THE TWO NOMINEES
FOR CLASS III DIRECTOR AND FOR ITEM 2.
1. ELECTION OF CLASS II DIRECTORS
FOR NOMINEE WITHHOLD AUTHORITY
LISTED BELOW TO VOTE FOR NOMINEE LISTED BELOW
[ ] [ ]
Nominee: Marie A. LeDoux
FOR NOMINEE WITHHOLD AUTHORITY
LISTED BELOW TO VOTE FOR NOMINEE LISTED BELOW
[ ] [ ]
Nominee: Lee G. Weldon
2. ELECTION OF CLASS III DIRECTORS
FOR NOMINEE WITHHOLD AUTHORITY
LISTED BELOW TO VOTE FOR NOMINEE LISTED BELOW
[ ] [ ]
Nominee: J. Scott Schmidt
3. To approve the adoption of the Natural Alternatives International, Inc. 1999
Omnibus Equity Incentive Plan, and to reserve 500,000 shares of common stock
of the Company to the Natural Alternatives International, Inc. 1999 Omnibus
Equity Incentive Plan:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. To approve the adoption of the Natural Alternatives International, Inc. 1999
Employee Stock Purchase Plan, and to reserve 150,000 shares of common stock
of the Company to the Natural Alternatives International, Inc. 1999 Employee
Stock Purchase Plan:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. To ratify the appointment of KPMG LLP as the Company's independent auditors:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. In their discretion, upon such other business as may properly come before
the meeting:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD
PROMPTLY, USING THE ENCLOSED ENVELOPE.
Dated: ______________________, 1999
________________________________________
SIGNATURE OF STOCKHOLDER
________________________________________
SIGNATURE OF JOINT STOCKHOLDER
NOTE: If signing as attorney, executor, administrator, trustee or guardian,
please give full title as such, and, if signing for a corporation, give
your title. When shares are in the names of more than one person, each
should sign.
