NATURAL ALTERNATIVES INTERNATIONAL, INC.
1185 LINDA VISTA DRIVE
SAN MARCOS, CALIFORNIA 92069
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 12, 1997
An Annual Meeting of Stockholders of Natural Alternatives International,
Inc., a Delaware corporation (the "Company"), will be held at the U.S. Grant
Hotel, 326 Broadway, San Diego, California 92121 on Friday, December 12,
1997, at 1:30 p.m. for the following purposes:
1. Election of one (1) director of the Company in Class I to serve
until the 2000 Annual Meeting of Stockholders (and until the election and
qualification of his successor);
2. Confirmation of KPMG Peat Marwick LLP as the Company's independent
auditors for the fiscal year ending June 30, 1998.
3. Transaction of such other business as may properly come before the
Annual Meeting of Stockholders or any adjournment thereof.
The Board of Directors has fixed the close of business on October 24,
1997 as the record date for determination of stockholders entitled to notice
of and to vote at the Annual Meeting of Stockholders or any adjournment. A
complete list of such stockholders will be available at the executive offices
of the Company for ten days before the meeting.
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 stockholders
returning the enclosed Proxy may revoke it prior to its exercise by voting in
person at the meeting or by filing with the Secretary of the Company a
written revocation or a duly executed Proxy bearing a later date.
By Order of the Board of Directors
Marie A. LeDoux, Secretary
San Marcos, California
November 12, 1997
NATURAL ALTERNATIVES INTERNATIONAL, INC.
1185 LINDA VISTA DRIVE
SAN MARCOS, CALIFORNIA 92069
---------------
PROXY STATEMENT
---------------
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Natural Alternatives International, Inc., a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders ("Annual Meeting")
to be held on Friday, December 12, 1997 at 1:30 p.m., local time, or at any
adjournment or postponement thereof. The Annual Meeting will be held at the
U.S. Grant Hotel, 326 Broadway, San Diego, California 92121. This Proxy
Statement and the accompanying Proxy and annual report are first being mailed
to stockholders on or about November 12, 1997.
VOTING
Only stockholders of record at the close of business on October 24, 1997
will be entitled to vote at the Annual Meeting. On October 24, 1997, there
were approximately 5,431,764 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.
On each or any other matter properly presented and submitted to a vote
at the Annual Meeting, each share will have one vote and an affirmative vote
of a majority of the shares represented at the Annual Meeting and entitled to
vote thereon (where the holders of a majority of the shares entitled to vote
are present in person or by Proxy) will be necessary to approve the matter.
There are no rights which will accrue to stockholders dissenting in any
matter known to the Company to be raised at the Annual Meeting.
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 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. It may be
revoked by filing with the Secretary of the Company at the Company's
principal executive office, 1185 Linda Vista Drive, San Marcos, California
92069, an instrument of revocation or a duly executed Proxy bearing a later
date, or it may be revoked by attending the Annual Meeting and voting in
person.
SOLICITATION
The Company 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 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
NOMINATION AND ELECTION OF DIRECTORS
The director to be elected will be elected to Class I of directors, to
hold office for three years and until the Annual Meeting held in 2000 and
until his or her successor is elected and has qualified, or until his or her
death, resignation, or removal. One director is to be elected at the Annual
Meeting to Class I. The nominee for director was elected by the stockholders
at the Company's 1996 annual meeting of stockholders.
The candidate receiving the highest number of affirmative votes cast at
the Annual Meeting shall be elected as director of the Company. The nominee
for election has agreed to serve if elected. If the nominee shall become
unavailable or refuse to serve as a director (an event that is not
anticipated), the proxy holders will vote for substitute nominees at their
discretion. Unless otherwise instructed, the proxy holders will vote the
Proxies received by them for the nominee named below.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE NAMED
NOMINEE.
NOMINEE
Set forth below is information regarding the nominee, including
information furnished by him as to his principal occupations for the last
five years, and age as of October 24, 1997.
NAME AGE DIRECTOR SINCE
---- --- --------------
Class I
Mark A. LeDoux 43 1986
MARK A. LEDOUX 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 the predecessor. From August 1986 to December
1996, Mr. LeDoux also served as the President of the Company. From 1976 to
1980, he 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 in Letters in 1975.
Mr. LeDoux graduated from the Thomas Jefferson School of Law, San Diego in
1979 with a Juris Doctorate. He is the son of Marie A. LeDoux.
2
INFORMATION ABOUT NOMINEES AND DIRECTORS
The following table provides certain information as of October 24, 1997
with respect to each nominee and each other director whose term will continue
after the Annual Meeting. Unless otherwise indicated, each person has been
engaged in the occupation shown for the past five (5) years.
PRINCIPAL OCCUPATIONS, YEAR FIRST
OTHER DIRECTORSHIPS AND ELECTED AS
NAME AGE POSITIONS WITH THE COMPANY DIRECTOR FAMILY RELATIONSHIP
---- --- -------------------------- ---------- --------------------
Mark A. LeDoux 43 Chief Executive Officer of 1986 Son to Chairperson of Board,
the Company Marie A. LeDoux
Lee G. Weldon 58 President of Nature's 1992 None
Apothecary, Inc.
Marie A. LeDoux 80 President of Play N' Talk 1986 Mother to Chief
International, Secretary of Executive Officer,
Company Mark A. LeDoux
William R. Kellas 46 President of Professional 1988 None
Preference
William P. Spencer 44 President, Treasurer, Chief 1986 None
Operating Officer, Chief
Financial Officer and Chief
Accounting Officer of the
Company
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1996, the Company acquired a portion of a building occupied by
certain of its offices and production facilities which, up to that time, were
being leased from its two principal stockholders, Marie A. LeDoux and Mark A.
LeDoux. The lease provided for rent payable in the amount of $60,000 per
year. The purchase price of the building was $545,000 which, in the opinion
of management and an independent certified appraiser who evaluated the
property in April 1996, represented fair market value.
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 term of
the agreement is ten years and will expire in December 2001. The commission
equals 5% of sales, with earnings capped at $25,000 per calendar quarter.
Amounts paid under this agreement were $100,000 for each of the years ending
June 30, 1997, 1996 and 1995. There were no amounts owed under the agreement
at June 30, 1997 or 1996.
Included in the financial statements of the Company as notes receivable
are notes from the Company's Chief Executive Officer and President. The
Balance of the notes, including accrued interest, at June 30, 1997 was
$74,444 and $89,824, respectively, and at June 30, 1996 was $70,119 and
$84,606, respectively.
3
Additionally, during the year ended June 30, 1997, the Company made
noninterest-bearing loans to the Chairman of the Board and the President in
the amount of $50,000 and $13,802, respectively, bringing the aggregate
amount of such loans to $219,012. Amounts owed on these loans, which are
secured by proceeds from life insurance policies on their respective lives,
were $150,000 and $100,000 for the Chairman of the Board and $69,012 and
$55,210 for the President at June 30, 1997 and 1996, respectively.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended June 30, 1997, the Board of Directors held
two meetings. The Board of Directors has an Audit Committee and a
Compensation Committee. All members of the Board of Directors 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 receive $500 for each Board of Director's meeting
personally attended. Executive officers serve at the discretion of the Board
of Directors.
The Audit Committee recommends a firm to be appointed by the Board of
Directors, 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 was
established in February 1993, and consists of three of the five directors,
Messrs. Kellas, Weldon and Spencer. During the fiscal year 1997, the Audit
Committee met one time.
The Compensation Committee establishes rates of salary, bonuses,
retirement and other compensation for all directors and officers of the
Company and for such other personnel as the Board of Directors may designate.
No member of the Compensation Committee may vote upon his or her own
compensation except for such items as are applicable to a group that also
includes personnel who are not directors or officers of the Company. The
Compensation Committee was established in May 1992, and consists of two of
the five directors, Messrs. Kellas and Weldon. Messrs. Kellas and Weldon are
directors and are not officers or employees of the Company or any of its
subsidiaries. During the fiscal year 1997, the Compensation Committee met
five times.
During the fiscal year ended June 30, 1997, each Board member attended
at least 75% of the aggregate of the meetings of the Board of Directors and
of the Committees on which he or she served.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND OTHER COMPENSATION. The following table sets forth
compensation for services rendered in all capacities to the Company during
the fiscal year ended June 30, 1997 by each of the executive officers.
4
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER(1) (#) (2)
- --------------------------- ---- -------- -------- -------- ------------ ------------
Mark A. LeDoux, Chief Executive 1997 $201,579 $50,345 $28,422 0 $18,703
Officer and Director 1996 $213,520 $45,300 $8,592 0 $21,987
1995 $172,942 $101,203 $11,602 100,000 $14,961
William P. Spencer, President, 1997 $178,830 $72,304 $166,178 0 $37,438
Chief Operating Officer, Treasurer, 1996 $169,275 $40,300 $113,656 0 $35,005
Chief Financial Officer, Chief 1995 $168,058 $83,854 $543 125,000 $35,538
Accounting Officer, and Director
(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.
OTHER COMPENSATION TABLE
Mark A. William P.
LeDoux Spencer
-------------------------
Other Annual Compensation-1997
Gain from exercise and sale of stock options $0 $92,799
Personal Transportation 18,600 13,800
Other Personal Expenses 9,822 59,579
-------------------------
Totals 28,422 166,178
Other Annual Compensation-1996
Gain from exercise and sale of stock options NA $53,078
Personal Transportation NA 7,284
Other Personal Expenses NA 40,600
Tax Payment Reimbursements NA 12,694
-------------------------
Totals $8,592 113,656
-------------------------
5
OTHER COMPENSATION TABLE CONT.
All Other Compensation-1997
401(K) Employer Contributions 5,550 6,698
Life Insurance Premiums 1,920 13,990
Medical, Dental and Vision 10,233 15,750
Board of Director Meetings 1,000 1,000
---------------------------
Totals 18,703 37,438
---------------------------
All Other Compensation-1996
401(K) Employer Contributions 8,759 10,974
Life Insurance Premiums 1,819 13,998
Medical, Dental and Vision 9,909 8,533
Board of Directors Meetings 1,500 1,500
---------------------------
Totals 21,987 35,005
All Other Compensation-1995
401(K) Employer Contributions 5,060 4,518
Life Insurance Premiums 1,813 13,895
Medical, Dental and Vision 5,838 14,875
Board of Directors Meetings 2,250 2,250
---------------------------
Totals 14,961 35,538
---------------------------
OPTION GRANTS. There were no option grants during fiscal year 1997.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning option exercises and
holdings under the 1992 Incentive Stock Option Plan, the 1992 Nonqualified
Stock Option Plan and the 1994 Nonqualified Stock Option Plan for the year
ended June 30, 1997, with respect to the Company's Chief Executive Officer,
the named executive officer and any required additional individuals.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
VALUE REALIZED OPTIONS/SARS AT FISCAL IN-THE-MONEY OPTIONS/SARS
SHARES MARKET PRICE AT YEAR-END (#) AT FISCAL YEAR END ($) (1)
ACQUIRED ON EXERCISE LESS --------------------------- ---------------------------
NAME EXERCISE (#) EXERCISE PRICE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------------ ----------- ------------- ----------- -------------
1992 PLANS
- ----------
Mark A. LeDoux 0 0 60,000 0 $165,200 -----
William P. Spencer 20,000 $92, 799 95,000 0 $261,250 -----
1994 PLAN
- ---------
Mark A. LeDoux 0 0 100,000 0 $300,000 $0
William P. Spencer 0 0 125,500 0 $375,000 $0
(1) The closing price of the Company's common stock at June 30, 1997, as
quoted on the American Stock Exchange was $7.625.
6
EMPLOYMENT AGREEMENTS. There were no employment agreements in effect at
June 30, 1997.
BONUS PLAN. There were no bonus plans in effect at June 30, 1997.
401(K) PLAN
The Natural Alternatives Partnership for Profits Plan ("Plan") is
considered a qualified plan under Section 401(k) of the Internal Revenue
Code. All employees of the Company with twelve months and at least one
thousand hours of service during the twelve month period are eligible to
participate in the Plan. The Plan provides for employee contributions of up
to 15% of compensation. Employer contributions are determined by the Board of
Directors at their discretion. The Company may match up to 100% of each
employee's contribution which does not exceed 5% of the employee's total
compensation. Employee contributions in the Plan are 100% vested.
Participants become vested in employer contributions at the rate of 34% the
first year, 67% the second year and 100% after three years. The Company
contributed and expensed $114,206, $101,161, and $50,345 in 1997, 1996 and
1995, respectively.
STOCK OPTION PLANS
The Company maintains three stock option plans: the 1992 Incentive Stock
Option Plan ("Incentive Plan") and the 1992 Nonqualified Stock Option Plan
("1992 Nonqualified Plan"), both of which were approved by the stockholders
of the Company at its Annual Meeting of Stockholders on June 5, 1992, and the
1994 Nonqualified Stock Option Plan ("1994 Nonqualified Plan") which was
approved by the Board of Directors on December 9, 1994, and by the
stockholders of the Company at its Annual Meeting of Stockholders on May 10,
1996. The 1992 Incentive Plan provides for the granting of "incentive stock
options" as described in Section 422 of the Internal Revenue Code (Code).
The 1992 and 1994 Nonqualified Plans provide for the granting of nonqualified
stock options which are not intended to qualify under any provision of the
Code. On September 9, 1993, all options then authorized under the Incentive
Plan and the 1992 Nonqualified Plan were granted at the fair market value
price of $4.875 per share. On December 9, 1994, the stockholders approved an
amendment to the Incentive Plan, increasing the number of common shares that
may be granted from 200,000 to 500,000. There have been no additional
options granted to date. On January 24, 1995, options for 500,000 shares
under the 1994 Plan were granted at the fair market value of $4.625 per share.
INCENTIVE PLAN
The purpose of the Incentive Plan is to promote the interests of the
Company by providing a method whereby key management personnel of the Company
and its subsidiaries responsible for the management, growth and financial
success of the Company may be offered incentives to encourage them to acquire
a 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 administered by either the Board of Directors
("Board") or the Company's Compensation Committee. Subject to the express
provisions of the Incentive Plan, the Board or the Compensation Committee
will have complete authority to determine the employees to whom, and the
times at which options are to be granted, the number of shares to be subject
to each option, the option term, and all other terms and conditions of an
option. The Board or the Compensation Committee will also have the authority
to interpret the provisions in the Incentive Plan and to prescribe rules and
regulations for its orderly administration.
7
The exercise price of incentive stock options granted under the
Incentive Plan may not be less than 100% of the fair market value of the
Common Stock on the date of the option grant. With respect to any key
employee who owns stock representing more than 10% of the voting power of the
outstanding capital stock of the Company, the exercise price of any incentive
stock option may not be less than 110% of the fair market value of such
shares at the time of grant and the term of such option may not exceed five
years. Each option granted under the Incentive Plan will be exercisable at
such time or times, during such period, and for such number of shares as is
determined by the Board or the Compensation Committee and set forth in the
instrument 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.
1992 AND 1994 NONQUALIFIED PLAN
The purpose of the 1992 and 1994 Nonqualified Plans (the "Nonqualified
Plans") 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, to afford those individuals the opportunity
to acquire a proprietary interest in the Company and to enable the Company to
enlist and retain in its employment qualified personnel for the successful
conduct of its business. 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 Plans.
The administrators of the Nonqualified Plans 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 Plans.
The exercise price for each share covered by the Nonqualified Plans will
be determined by the administrators, but will not be less than 60% and 100%
for the 1992 Nonqualified Plan and the 1994 Nonqualified Plan, respectively,
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
8
Plans. In addition, the administrators will determine the time or times each
option may be exercised. Options may be exercisable in installments, and the
exercisability of options may be accelerated by the administrators.
Options granted pursuant to the Nonqualified Plans 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 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 Plans' 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 Plans
also provide that in the event of a change of control of the Company, certain
acceleration and valuation provisions shall apply, except as otherwise
determined by the Board at its discretion prior to the change of control.
In the event of any change in capitalization in the Company which
results in an increase or decrease in the number of outstanding shares of
Common Stock without receipt of consideration by the Company, an appropriate
adjustment shall be made in the number of shares which have been reserved for
issuance under the Nonqualified Plans and the price per share covered by each
outstanding option.
DEFINED BENEFIT PENSION PLAN
Effective January 1, 1997, the Company adopted a defined benefit pension
plan (the "Plan") covering substantially all of its employees. The benefits
are based on years of service and the employee's compensation during the five
years before retirement. The Company will make annual contributions to the
Plan equal to the maximum amount that can be deducted for income tax
purposes. For the six months ended June 30, 1997, the estimated current
service cost (normal cost) is $92,000 and the amortized portion of the
unfunded estimated accrued liability for prior service cost, using a 30-year
funding period, is $66,000. Such amounts have been accrued in the current
period. The following table sets forth estimated annual benefits payable on
retirement in specified compensation and years of service classifications.
PENSION PLAN TABLE
------------------
YEARS OF SERVICE
-----------------
REMUNERATION 15 20 25 30 35
125,000 21,563 28,750 35,938 43,125 50,313
150,000 25,875 34,500 43,125 51,750 60,375
175,000 30,188 40,250 50,313 60,375 70,438
200,000 34,500 46,000 57,500 69,000 80,500
225,000 38,813 51,750 64,688 77,625 90,563
250,000 43,125 57,500 71,875 86,250 100,625
300,000 51,750 69,000 86,250 103,500 120,750
400,000 69,000 92,000 115,000 138,000 161,000
450,000 77,625 103,500 129,375 155,250 181,125
500,000 88,250 115,000 143,750 172,500 201,250
9
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee is a standing committee of the Board of
Directors of the Company. The Compensation Committee is responsible for
adopting and evaluating the effectiveness of compensation policies and
programs for the Company and for making determinations regarding the
compensation of the Company's executive and other officers, subject to review
by the full Board of Directors. In fiscal year 1997 the members of the
Committee were William R. Kellas and Lee G. Weldon, who are non-employee
directors of the Company. During fiscal year 1997, the Compensation
Committee met five times.
The following report is submitted by the Compensation Committee members
with respect to the executive compensation policies established by the
Compensation Committee and compensation paid or awarded to executive and
other officers for fiscal year 1997.
In adopting and evaluating the effectiveness of compensation programs
for executive officers, as well as other employees of the Company, the
Compensation Committee is guided by three basic principles:
1. The Company must offer competitive salaries to be able to attract
and retain highly-qualified and experienced executives and other management
personnel.
2. Annual executive compensation in excess of base salaries should be
tied to the Company's performance.
3. The financial interest of the Company's senior executives should be
aligned with the financial interest of the stockholders, primarily through
stock option grants and other equity-based compensation programs which reward
executives for improvements in the long term value of the Company's Common
Stock.
SALARIES AND EMPLOYEE BENEFIT PROGRAMS. In order to retain executives
and other key employees, and to be able to attract additional well-qualified
executives when the need arises, the Company strives to offer salaries,
health care and other employee benefit programs to its executives and other
key employees which are comparable to or better than those offered by
competing businesses.
In establishing salaries for executive officers, the Compensation
Committee reviews (i) the historical performance of the executives; and (ii)
available information regarding prevailing salaries and compensation programs
offered by competing businesses. Another factor which is considered in
establishing salaries of executive officers is the cost of living in Southern
California where the Company is headquartered, as such cost generally is
higher than in other parts of the country.
The Committee believes the base salary and employee benefits in 1997
were generally comparable to those offered by the Company's competitors.
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 its senior executives
and other key employees on a periodic basis, to purchase Common Stock of the
Company. Stock option grants reward senior executives and other key
employees for performance that results in increases in the market price of
the Company's Common Stock, which directly benefits all stockholders.
CHIEF EXECUTIVE OFFICER'S COMPENSATION. Mr. Le Doux, the Chief
Executive Officer, is awarded a base salary level and evaluation
substantially in accordance with the foregoing policies. During fiscal year
1997, Mr. LeDoux's base salary was $201,579, and he received an incentive
bonus award of $50,345. In determining Mr. Le Doux's base salary and
incentive award for fiscal year 1997, the Compensation Committee, in its
10
discretion, considered Mr. LeDoux's role in implementing the Company's stated
strategic goals and achievement of increased net sales and successful
customer expansion into foreign markets. No specific weight was assigned to
these factors by the Compensation Committee in determining the amount of Mr.
LeDoux's base salary and incentive award.
Compensation Committee
William R. Kellas
Lee G. Weldon
The material in this report and the accompanying Stockholder Return
Performance Graph is not "soliciting material," is not deemed filed with the
SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended, whether made before or after the date hereof and
irrespective of any general incorporation language in any such filing.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The
members of the Company's Compensation Committee for fiscal 1997 were William
R. Kellas and Lee G. Weldon. No current member of The Compensation Committee
is a current or former officer or employee of the Company or its subsidiaries.
FIVE YEAR STOCKHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing over the past five years the
yearly performance of the cumulative total stockholder return 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, 1992 and
ending June 30, 1997. The graph assumes that all dividends have been
reinvested.
STOCKHOLDER RETURN PERFORMANCE TABLE
6/30/92 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97
------- ------- ------- ------- ------- -------
Natural Alternatives Interna 100 106 194 139 211 169
NASDAQ US 100 126 127 169 218 265
Nasdaq Pharmaceuticals 100 87 73 97 142 145
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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, 1997 by: (i) each
director and nominee for director; (ii) each of the executive officers named
in the Summary Compensation Table in Executive Compensation; (iii) all
executive officers and directors of the Company as a group; and (iv) all
those known by the Company to be beneficial owners of more than 5% of the
Common Stock.
DIRECTORS AND OFFICERS
AMOUNTS AND
NATURE OF
TITLE OF NAME AND ADDRESS BENEFICIAL PERCENT
CLASS OF BENEFICIAL OWNER OWNERSHIP(1)(2) OF CLASS(2)
- -------- ------------------- --------- --------
Common Stock Marie A. LeDoux(3) 1,077,301 16.98%
1185 Linda Vista Dr.
San Marcos, CA 92069
Common Stock Mark A. LeDoux(4) 495,317 7.81%
1185 Linda Vista Dr.
San Marcos, CA 92069
Common Stock William R. Kellas(5) 29,500 0.46%
1185 Linda Vista Dr.
San Marcos, CA 92069
Common Stock William P. Spencer(6) 234,792 3.70%
1185 Linda Vista Dr.
San Marcos, CA 92069
Common Stock Lee G. Weldon 43,880 0.69%
1185 Linda Vista Dr.
San Marcos, CA 92069
Common Stock All Directors and 1,880,790 29.64%
Officers as a
Group (7 Persons)
(1) Except as indicated in the footnotes to this table and pursuant 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.
(2) Shares of Common Stock which were not outstanding but which could be
acquired upon exercise of an option within 60 days from the date of this
filing are considered outstanding for the purpose of computing the percentage
of outstanding shares beneficially owned. However, such shares are not
considered to be outstanding for any other purpose.
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(3) Includes 10,000 shares which Mrs. LeDoux has the right to acquire upon
exercise of options exercisable within 60 days after the Record Date.
(4) Includes 800 shares held in the name of Mr. LeDoux's wife, Julie LeDoux
and 8000 shares held as custodian for his children and a niece. Also
includes 160,000 shares which Mr. LeDoux has the right to acquire upon
exercise of options exercisable within 60 days after the Record Date.
(5) Includes 1,500 shares of common stock held in the name of Dr. Kellas'
wife and 15,000 shares which Dr. Kellas has the right to acquire upon
exercise of options exercisable within 60 days after the Record Date.
(6) Includes 2,400 shares held as custodian for Mr. Spencer's children.
Also includes 240,000 shares which Mr. Spencer has the right to acquire upon
exercise of options exercisable within 60 days after the Record Date.
There is no arrangement known with the Company, the operation of which may at
a subsequent date, result in a change of control of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission ("SEC") and the American Stock Exchange. Executive officers,
directors and greater than 10% stockholders are required by SEC regulations
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of reporting forms received by
the Company, the Company believes that during its most recent fiscal year
ended June 30, 1997, that its officers and directors complied with the filing
requirements under Section 16(a).
PROPOSAL 2
SELECTION OF AUDITORS
Subject to stockholder approval at the Annual Meeting, the Board of
Directors has selected KPMG Peat Marwick LLP to continue as the Company's
independent auditors for the fiscal year ending June 30, 1998. A
representative of KPMG Peat Marwick LLP is expected to be present at the
Annual Meeting. The representative will have an opportunity to make a
statement and will be available to respond to appropriate questions from
stockholders.
Stockholder ratification of the selection of KPMG Peat Marwick LLP as
the Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of KPMG Peat
Marwick LLP to the stockholders for ratification as a matter of good
corporate practice. If the stockholders fail to ratify the selection, the
Board will reconsider whether or not to retain that firm. Even if the
selection is ratified, the Board in its discretion may direct the appointment
of a different independent accounting firm at any time during the year if the
Board determines that such a change would be in the best interests of the
Company and its stockholders.
The affirmative vote of the holders of a majority of the shares
represented and voting at the meeting will be required to ratify the
selection of KPMG Peat Marwick LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2
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STOCKHOLDERS' PROPOSALS
Stockholders who intend to submit proposals at the 1998 Annual Meeting
must submit such proposals to the Company no later than June 1, 1998 in order
for them to be included in the Proxy Statement and the form of Proxy to be
distributed by the Board of Directors in connection with that meeting.
Stockholders proposals should be submitted to Natural Alternatives
International, Inc., 1185 Linda Vista Drive, Suite D, San Marcos, CA 92069.
ANNUAL REPORTS
The Company's 1997 Annual Report which includes audited financial
statements for the Company's fiscal year ended June 30, 1997, is being mailed
with this Proxy Statement to stockholders of record on or about November 12,
1997.
OTHER MATTERS
The Board of Directors knows of no other matters which will be brought
before the Annual Meeting. However, if any other matter properly comes
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.
The Board of Directors
By: Marie A. LeDoux, Secretary
San Marcos, California
November 12, 1997
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