EXHIBIT 10.3

 

NATURAL ALTERNATIVES INTERNATIONAL

 

MANAGEMENT CASH INCENTIVE PLAN

 

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NATURAL ALTERNATIVES INTERNATIONAL

MANAGEMENT INCENTIVE PLAN

 

Plan Design

 

The NAI Management Incentive Plan is designed to reward Participants for
contributing significantly to the successful performance of NAI during the
fiscal year, which is referred to herein as the Plan Year. This Plan applies to
Senior Managers and Executives, and is intended to reward quantitative,
measurable performance in areas that are key to growing and maintaining our
business. Awards will be based on the performance of goals set for the Company,
for the Participant’s functional or departmental responsibilities, and for
individual performance.

 

Participation

 

Eligibility to participate in this Plan will be limited to individuals who are
approved by the Human Resources Committee of the Board of Directors, based on
Management’s recommendation, and who meet all of the following criteria:

 

  1. Classified as an active employee in an incentive eligible position for at
least six months during the Plan Year, which must include the final day of the
Plan Year and the subsequent date of determination of any Award, except as
provided in the Changes in Employment Status section

 

  2. Performing at a satisfactory level and not subject to disciplinary action
at any time during or at the end of the Plan Year

 

  3. Not a participant in another NAI cash incentive plan.

 

Participants might be placed into groups based on their reporting relationship
to the Chief Executive Officer, their salary, their title, on other criteria, or
on no criteria. If groupings are used for this Plan, they will be intended only
for the use of this Plan, and will not convey any rights or privileges other
than for the purposes of this Plan. If groupings are used in this Plan, the Plan
specifics may vary from one group to another.

 

Performance Goal Categories

 

One or more performance goals will be set in various goal categories, including,
but not necessarily limited to, Company performance, Functional/Departmental
performance, and Individual performance. The relative importance, or weight, of
goals in these goal categories will be set in writing for each Participant at
the beginning of, or soon after the beginning of, the Plan Year.

 

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For example, the weighting of the goal categories for senior executives might be
as follows:

 

Goal Category

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   Goal Weighting

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Corporate goals

     50%

Functional/Departmental goals

     25%

Individual goals

     25%     

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Total

   100%

 

Corporate Goal

 

Each year Management and the Board of Directors will decide on one or more
Corporate Goals; the Plan anticipates these goal(s) will be one or more of the
following: revenue, after-tax after bonus net income, and profit margin (defined
as after-tax after bonus net income divided by revenue).

 

The Board might designate one or more of these goals as a “gating item,” with a
minimum performance level requirement, called the Threshold. If performance does
not at least equal this minimum level, no bonus will be payable under this plan,
regardless of performance on other goals in this or other goal categories.

 

Functional/Departmental, and Individual Goals

 

Participants will likely be covered by Functional/Departmental and Individual
goals. The specific goal or goals in these categories will be discussed and
agreed upon between the Participant and his or her manager. All goals in these
categories must be in writing, and accepted and approved the Human Resources
Committee.

 

Performance Evaluation

 

Determination of a measure of completion or performance of all goals will be
evaluated by Management, but will be subject to the review and approval of the
Human Resources Committee in their sole and absolute discretion.

 

Incentive Opportunities

 

Each Participant shall be advised by Management of his or her incentive
opportunity for each Plan Year. The opportunity may be allocated among the
Company’s goals and the Department’s or the Participant’s individual goals as
determined by the Human Resources Committee for each Plan Year. The
opportunities may be defined as a percent of salary and/or a flat dollar amount,
and might vary from participant to participant, and from goal to goal.

 

Performance or completion of each goal may be evaluated on a “pass/fail” basis,
or may be designated at three performance levels: a Threshold, a Target, and an
Outstanding (truly stretch) level. The bonus earned will be directly related to
the Participant’s performance and determination of achievement (if any) of each
performance goal.

 

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For example, the participant may be given a table like the following, showing
the incentive as a percent of base salary (the numbers are for illustration
only):

 

 

For Functional/Departmental Goal “X”

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   Incentive Oppty.

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For meeting Threshold

     1%

For meeting the Target level

   20%

For meeting the Outstanding level

   40%

 

Performance that falls between two levels (e.g., above the Threshold, but below
the Target) will produce a pro-rated bonus. Performance that exceeds the
Outstanding level will result in an Award that increases in the same
mathematical progression as the Award increases from the Target to the
Outstanding level. There is no maximum award limitation under this Plan.

 

Performance or achievement (if any) of each goal will be measured independently
and will lead to bonuses determined separately for each goal, subject to any
overall Corporate “gating item” provision(s), if applicable for each Plan Year.
Thus, awards may be earned in one, two, or all three categories.

 

Timing and Payment of Awards

 

Awards are not earned until the Human Resources Committee approves the Award.
This means that although the Plan Year has ended, the Participant is not
entitled to an Award unless the Human Resources Committee of the Board of
Directors determines the Participant is entitled to receive the Award. The Plan
specifically requires that a Participant be on the active payroll at the time
the Award is approved and paid, except for special provisions for certain
separations described in the Changes in Employment Status section.

 

No awards will be approved, and therefore cannot be earned, until the audited
financial results for the Company are completed.

 

Awards will be paid in a single cash payment shortly after the Human Resources
Committee has approved the Award.

 

No Employment Right

 

Nothing contained in nor any action taken under the Plan will confer upon any
Participant any right to continue in the employment of NAI, and does not
constitute any contract or agreement of employment, or interfere in any way with
the right of NAI to terminate such person’s employment as an “At Will” employee.

 

Changes in Employment Status

 

Transfers, Promotions, Disability, Retirement or Leave of Absence

 

Proposed Awards will be paid after the yearly audit has been completed and the
Human Resources Committee of the Board of Directors, subject to the following,
has approved the Award:

 

1. Transfer or promotion into a position not eligible under this Plan, or from
an ineligible position to an eligible one, will result in the Participant
becoming eligible for a pro-rated bonus, as long as he/she has been in an
eligible position for not less than six months in the Plan Year.

 

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2. Total and permanent disability will result in the Participant becoming
eligible for a pro-rated award, subject to actual performance of the goals set
for the Participant prior to the disability and for the Company during the
entire Plan Year.

 

3. Retirement from active employment, subject to qualifying for retirement
benefits under any then applicable retirement plans and the approval of the
Human Resources Committee will result in the Participant becoming eligible for a
pro-rated bonus, provided all other performance requirements of the individual
prior to retirement and the Company for the entire Plan Year having been met.

 

4. An approved leave of absence will be treated in the same manner as a transfer
from or into an eligible position.

 

Termination

 

Company Initiated: If the employment of a Participant is terminated by NAI with
or without cause for any reason prior to payment of the Award the Participant
forfeits all rights to any Award for the Plan Year.

 

Voluntary: Participants terminating employment by their own action prior to
payment of the Award forfeit all rights to any Award.

 

Death of a Participant

 

A pro-rated bonus may be paid to a Participant’s estate, assuming performance
prior to his or her death reached or exceeded the Minimum or Threshold
performance level requirements, subject to any corporate Minimum or Threshold
performance requirements being met.

 

A Participant may file with NAI a designation of a beneficiary or beneficiaries
on a form provided by the Human Resources Department. The designation may be
changed or revoked by the Participant’s sole action, provided that such change
or revocation is filed with NAI in writing in any form approved by NAI.

 

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