Exhibit 10.1

 

NATROL, INC.

2006 BONUS INCENTIVE COMPENSATION PLAN

 

PART I

 

SECTION 1.                          PURPOSE

 

The purpose of the Executive Incentive Compensation Plan (“the Plan”) is to
enhance and reinforce the goals of Natrol, Inc. and its subsidiaries (the
“Company”) for profitable growth and continuation of a sound overall condition. 
This will be accomplished by providing key employees with additional financial
rewards for attainment of such growth and stable financial and operating
condition.  Final approval of the payment of any awards made under the Plan is
subject to the discretion of the Board of Directors.

 

SECTION 2.                            DEFINITIONS

 

2.1         Definitions of terms as used throughout this Plan document are as
follows:

 

(a)          “Award Year” means the twelve-month period coinciding with the
organization’s annual accounting period, January 1st – December 31st.

 

(b)         “Committee” means a Committee established by the Board of Directors
of the Organization to administer the Plan.

 

(c)          “Participant” means an eligible employee, all of whom have been
selected without regard to race, color, religion, sex, gender, marital status,
age, national origin, sexual orientation, physical or mental disability, medical
condition, veteran status, or any basis protected by law.

 

SECTION 3.                        ELIGIBILITY

 

Bonuses under the Bonus Plan may be granted to those key employees of the
Company, including officers of the Company, whether or not they are directors of
the Company.

 

SECTION 4.                            ADMINISTRATION

 

The Compensation Committee of the Board of Directors of the Company shall
administer the Plan.  This Committee shall be comprised of not less than three
members as shall be appointed from time to time by the Board of Directors.

 

The Committee has full power and authority to annually select participants from
among those eligible, to determine the amount of funds included in the bonus
pool upon Board approval of the budget plan, to determine the amount and timing
of individual awards, and to adopt and revise such rules and procedures as it
shall deem necessary for the administration of the Plan.

 

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4.1  Resolution of Disputes & Awards

 

The decision of the Committee with respect to any question or disputes arising
out of participation in “the Plan”, or the individuals selected for awards, and
the interpretation of the provisions of this Plan shall be final, conclusive and
binding on all parties with no right of court, jury or other review.

 

SECTION 5.                            PARTICIPATION

 

Participation in the Plan shall be limited to regular salaried employees of the
Company, including officers as recommended by management and approved by the
Committee.  In selecting participants, the Committee shall consider an
individual’s position and potential impact on the Company’s business results and
performance.  The selection of participants, and their respective incentive
awards, shall be determined annually by the Committee and communicated to
Participants as soon as possible.  The Committee selection of participants shall
be final, conclusive and binding on all parties with no right of court, jury or
other review.

 

SECTION 6.                            AWARDS COMPUTATION – GENERAL

 

The Committee should establish the performance criteria for the award of the
Incentive Bonus Compensation (criteria) at the beginning of each calendar year.

 

6.1       The Committee shall establish all operating rules and criteria for the
Plan by the first quarter of each calendar year.

 

It is expected that during any bonus plan year, there could be unusual and/or
non-recurring significant revenue or expenses that the Committee believes should
be considered for exclusion for determination of bonus compensation.  The
Committee will evaluate these occurrences and decide whether the resulting
effect on earnings will be excluded or included from the Company’s results of
operations (“qualifying earnings”).

 

Plan participants will be given timely notice of any such material changes or
events that alter the “qualifying earnings”.

 

6.2       The participant’s immediate supervisor should be consulted prior to
any award being made to verify that the participant is in good standing and
qualifies for inclusion in the Plan.  Eligibility for an award does not
automatically guarantee that a reward will be granted to the Participant at any
level or if at all.  Any decision by the Committee to otherwise reduce a bonus
award and/or exclude the Participant from a bonus award entirely shall be final,
conclusive and binding on all parties with no right of court, jury or other
review.  The fact that a particular Participant is not under any type of
employment reprimand (e.g., probation, warning, etc.) does not preclude the
Committee from awarding a particular employee a reduced award or no bonus award
entirely.

 

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6.3       Each Bonus Participant is eligible for the percentage of Bonus for
each level of achievement of the Performance Goal, and such other terms and
conditions as the Committee, in its sole discretion, shall determine.  Part II,
Section 3, includes guidelines that will be followed to measure results.

 

SECTION 7.                            PAYMENT OF AWARDS

 

7.1       Normal Payment

 

Awards shall be earned as of the last business day of the Award Year.  As soon
as reasonably practicable following the end of a Measurement Period, but in no
event later than ninety (90) days following the fiscal year end close, the
Compensation Committee shall certify in writing the level of achievement of each
Performance Goal established by the Compensation Committee with respect to such
Measurement Period.

 

Bonus payments shall be made from the general funds of the Company and no
special or separate fund shall be established or other segregation of assets
made to assure payment.  No participant or other person shall have under any
circumstances any interest in any particular property or assets of the Company.

 

7.2       Payment Under Conditions of Termination

 

(a) If termination of employment occurs during an Award Year on account of
death, total disability, or approved leave of absence, such Participant
terminating employment shall be deemed to have earned a proportionate (prorated)
share of that would otherwise be that Award Year’s actual bonus.

 

(b) The amount of such Award shall be the amount that would have been earned had
the Participant been employed by the Company during the full Award Year,
multiplied by a fraction, the numerator of which is the number of days that the
Participant was employed by the Company, and the denominator of which is the
number of days in that full Award Year.

 

7.3       Participant Transfer

 

If a Participant is transferred to another Subsidiary affiliated with the
Company during an Award Year, and is determined to be eligible for payments
under one or both of the Subsidiary’s plans, partial awards will be made under
each Plan based on a pro rata determination as described in the preceding
paragraph.

 

If termination of employment occurs for any reason other than death, total
disability, or approved leave of absence, no award shall be deemed earned for
the Award Year in which such termination occurs.

 

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SECTION 8.                            DISSOLUTION OR MERGER

 

If the Company should be liquidated and/or dissolved, or if the Company should
become a party to a merger or consolidation in which it is not the surviving
corporation, the value of the bonus fund shall be determined in accordance with
paragraph 7.2 (b) and on the date of such dissolution or merger.

 

SECTION 9.                            AMENDMENT OR TERMINATION

 

The Board of Directors of the Company or the Compensation Committee of the Board
of Directors, if and to the extent authorized, in absolute discretion of the
body so acting and without notice, may at any time amend or terminate the Plan,
provided that no such amendment or termination shall adversely affect the rights
of any participation under any award previously granted.

 

SECTION 10. OTHER CONDITIONS

 

10.1 Right of Assignment

 

No right or interest of any Participant in the Plan shall be assignable or
transferable, or subject to any lien, directly, by operation of law, or
otherwise including levy, garnishment, attachment, pledge, and bankruptcy.  In
the event of a Participant’s death, payment shall be made to the Participant’s
designated beneficiary, or in the absence of such designation, to the
Participant’s estate.

 

10.2 Right of Employment

 

The receipt of an award under this Plan shall not give any employee any right to
continued employment by the Company, and the right to dismiss any employee is
specifically reserved to the Company.  Similarly, employment status does not
guarantee the Participant the granting of a bonus award in any amount, if at
all.  The receipt of an award in any year shall not give an employee the right
to receive an award in any subsequent year.

 

10.3 Withholding for Taxes

 

The Company shall have the right to deduct from all payments under this Plan any
federal or state taxes required by law to be withheld with respect to such
payments.

 

SECTION 11.                     EFFECTIVE DATE

 

The effective date of this Plan shall be January 1, 2006 as amended and adopted
by the Compensation Committee of the Board of Directors of the Company.

 

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PART II. OPERATING RULES

 

SECTION 1.                          GENERAL

 

The following Bonus Incentive Compensation Plan Operating Rules will be in
effect during January 1, 2006 — December 31, 2006.  These Operating Rules are
subject to change by the Committee before the start of the Plan Year, with the
approval of the Board of Directors.  It is anticipated that the rules will be
revised only when significant changes occur, or other pertinent factors affect
the operation of the Plan.  Changes from year to year will be minimized in order
to maintain the basic continuity of the Plan.

 

SECTION 2.                            PLAN PARTICIPANTS

 

Plan Attachment II.1 lists the current Plan Year Participant names, titles,
organizational and/or responsibilities.  Plan Participants are selected prior to
the start of the Plan Year.  New participants may be added at a later date,
e.g., newly hired employee, provided they meet qualifying criteria guidelines
and will be subject to a prorated percent of award, should criteria be met.

 

SECTION 3.                            INCENTIVE FORMULAS

 

Instructions for calculating the bonus pool are included in Attachment II.2. 
Attachment II.3 includes the formulas for calculating the individual incentive
compensation awards.  The attachments include additional definitions of terms
and descriptions of the calculations.

 

SECTION 4.                          EFFECTIVE DATE

 

The effective date of the Bonus Incentive Compensation Plan shall be January 1,
2006.

 

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ATTACHMENT II.1 Plan Participants (By Title Only)

 

Officers & Others

 

Directors & Others

 

 

 

Founder & Executive Chairman of the Board

 

Director, Prolab Marketing & Sales

 

 

 

Chief Executive Officer & President

 

Director, International Sales

 

 

 

Executive Vice President, Chief Financial Officer & Treasurer

 

Director, Product and Marketing Processes

 

 

 

Chief Operating Officer

 

Director, MIS & IT

 

 

 

Vice President & General Counsel

 

Director, Marketing Communications

 

 

 

Vice President, Manufacturing

 

Director, Human Resources

 

 

 

Vice President, Operations

 

Director, Warehousing

 

 

 

Vice President, Sales

 

Director, Planning & Inventory Control

 

 

 

Vice President, Research & Development

 

Director, Creative

 

 

 

Vice President, Marketing

 

Director, Purchasing

 

 

 

Vice President, QA & QC

 

Controller

 

 

 

Assistant General Counsel

 

Corporate Secretary & Senior Mgr., Legal

 

 

 

 

 

Senior Manager, Compliance

 

 

 

Total Represented Salary: $ 3, 230, 183

 

Total Represented Salary: $ 1, 206, 767

 

 

 

Estimated Maximum Accrual: $ 807, 546

 

Estimated Maximum Accrual: $ 181, 015

 

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Managers & Others

 

Managers & Others

 

 

 

Senior Manager, Sales

 

Manager, Inventory Control

 

 

 

Senior Manager, EPI Sales Administration

 

Manager, Shipping

 

 

 

Senior Manager, Planning

 

Manager, General Ledger

 

 

 

Senior Manager, Paralegal

 

Manager, Accounts Payable

 

 

 

Manager, Technical Services

 

Manager, Accounts Receivable

 

 

 

Manager, Research & Development (3)

 

Supervisor, Quality Control

 

 

 

Manager, Marketing (3)

 

Supervisor, Manufacturing (2)

 

 

 

Manager, Warehousing

 

Supervisor, Maintenance

 

 

 

Manager, Quality Assurance

 

Supervisor, Packaging

 

 

 

Manager, Consumer Services

 

Executive Assistant

 

 

 

Manager, Production & Manufacturing

 

 

 

 

 

Total Represented Salary: $ 1, 822, 357

 

 

 

 

 

Estimated Maximum Accrual: $ 182, 236

 

 

 

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ATTACHMENT II.2 – Instructions for Calculating Bonus Pool

 

A target bonus fund shall be established equal to 10%-25% of the annual base
salary of the Plan Participants as called out below.  “Base salary” for the
purposes of this Plan is defined as the particular Participant’s W-2 earnings
for the calendar year attributed only to his/her annual salary rate, and does
not include any other Company benefits, distributions, bonuses paid to a
Participant in any particular years or other sources of income.  Employees based
upon their title as stated on Attachment II.1 will be eligible for an annual
incentive bonus as a percentage of their base salary.

 

 

 

Bonus Fund

 

 

 

Officers & Others

 

25% of base salary

 

 

 

Directors & Others

 

15% of base salary

 

 

 

Managers & Others

 

10% of base salary

 

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ATTACHMENT II.3 - Formulas for Calculating the Individual Incentive Compensation
Awards

 

The incentive program shall be based on “qualifying income” as defined in
paragraph 6.1 and corporate earnings.  The 2006 target to receive 100% of the
eligible incentive bonus is $5,000,000 before bonuses, interest and income
taxes.  The Compensation Committee of the Board has agreed to pay a portion of
the eligible incentive bonus based on partial milestones achieved, as well as
exceeding the corporate target.

Chart for percentage of eligible schedule

 

 

 

Target

 

Award

 

 

10,000,000

 

150%

 

 

9,000,000 – 9,999,999

 

140%

 

 

8,000,000 – 8,999,999

 

130%

 

 

7,000,000 – 7,999,999

 

120%

 

 

6,000,000 – 6,999,999

 

110%

*Corporate Goal

 

5,000,000 – 5,999,999

 

100% of eligible bonus

 

 

4,000,000 – 4,999,999

 

75%

 

 

3,000,000 – 3,999,999

 

50%

 

 

2,000,000 – 2,999,999

 

25%

 

 

1,000,000 – 1,999,999

 

20%

 

 

0 - 999,999

 

15%

 

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*Before Bonuses, Interest and Income Taxes

 

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