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0001021561-09-000047.txt : 20090417
0001021561-09-000047.hdr.sgml : 20090417
20090417155427
ACCESSION NUMBER: 0001021561-09-000047
CONFORMED SUBMISSION TYPE: DEF 14A
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20090518
FILED AS OF DATE: 20090417
DATE AS OF CHANGE: 20090417
EFFECTIVENESS DATE: 20090417
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: NU SKIN ENTERPRISES INC
CENTRAL INDEX KEY: 0001021561
STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122]
IRS NUMBER: 870565309
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1208
FILING VALUES:
FORM TYPE: DEF 14A
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-12421
FILM NUMBER: 09756881
BUSINESS ADDRESS:
STREET 1: 75 WEST CENTER ST
STREET 2: ATTN: D. MATTHEW DORNY
CITY: PROVO
STATE: UT
ZIP: 84601
BUSINESS PHONE: 801-345-6100
MAIL ADDRESS:
STREET 1: 75 WEST CENTER ST
STREET 2: ATTN: D. MATTHEW DORNY
CITY: PROVO
STATE: UT
ZIP: 84601
FORMER COMPANY:
FORMER CONFORMED NAME: NU SKIN ASIA PACIFIC INC
DATE OF NAME CHANGE: 19960919
DEF 14A
1
proxy2009.htm
2009 NSE PROXY STATEMENT
NSE 2009 Proxy Statement
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement
Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.
)
Filed by the Registrant ![](ballotx.jpg)
Filed by a Party other than the Registrant ![](ballot.jpg)
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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![](ballot.jpg) |
Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
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NU SKIN ENTERPRISES, 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): |
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No fee required. |
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Fee computed on
table below per Exchange Act Rules 14a-6(1)(4) and 0-11. |
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(1) |
Title of each class of securities to which transaction applies: |
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(2) |
Aggregate number of securities to which transaction applies: |
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(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): |
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(4) |
Proposed maximum aggregate
value of transaction: |
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Fee paid previously with preliminary materials. |
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![](ballot.jpg) |
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. |
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(1) |
Amount Previously Paid: |
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(2) |
Form, Schedule or Registration Statement No.: |
NOTICE OF ANNUAL
MEETING OF STOCKHOLDERS OF
NU SKIN ENTERPRISES,
INC.
May 18, 2009
NOTICE
IS HEREBY GIVEN that the Annual Meeting of Stockholders (the Annual Meeting)
of Nu Skin Enterprises, Inc., a Delaware corporation, will be held at 2:00 p.m.,
Mountain Daylight Time, on May 18, 2009, at our corporate offices, 75 West Center Street,
Provo, Utah 84601, for the following purposes, which are more fully described in the Proxy
Statement:
1.
To elect a Board of Directors consisting of eleven directors to serve until the
next annual meeting of stockholders or until their successors are duly elected
and qualified;
2.
To ratify the selection of PricewaterhouseCoopers LLP as our independent
registered public accounting firm for the fiscal year ending
December 31, 2009; and
3.
To transact such other business as may properly come before the Annual Meeting
or any adjournment or postponement thereof.
The
Board of Directors has fixed the close of business on March 31, 2009, as the record
date for determining the stockholders entitled to receive notice of and to vote at the
Annual Meeting or any adjournment or postponement thereof.
You
are cordially invited to attend the Annual Meeting in person. However, to ensure your
representation at the Annual Meeting, please mark, sign, date and return the accompanying
proxy as promptly as possible in the enclosed postage-prepaid envelope. If you attend the
Annual Meeting, you may, if you wish, withdraw your proxy and vote in person.
Important
Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be Held on
May 18, 2009. The proxy statement and annual report to stockholders are available at
http://materials.proxyvote.com/67018T.
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By Order of the Board of Directors,
![](revisedblakesignature.jpg)
BLAKE M. RONEY
Chairman of the Board |
Provo, Utah, April 17, 2009
PROXY STATEMENT
NU SKIN ENTERPRISES,
INC.
ANNUAL MEETING OF
STOCKHOLDERS
TO BE HELD ON
MAY 18, 2009
SOLICITATION OF PROXIES
The
accompanying proxy is solicited on behalf of the Board of Directors of Nu Skin
Enterprises, Inc. (Nu Skin, we, us, or the
company) for use at the Annual Meeting of Stockholders (the Annual
Meeting) to be held at our corporate offices, 75 West Center Street, Provo, Utah
84601, on May 18, 2009, at 2:00 p.m., Mountain Daylight Time, and at any adjournment
or postponement thereof, for the purposes set forth in the accompanying Notice of Annual
Meeting of Stockholders. Each proposal is described in more detail in this Proxy
Statement. These proxy solicitation materials were first sent or given to our stockholders
on or about April 17, 2009.
All
shares represented by each properly executed, unrevoked proxy received in time for the
Annual Meeting will be voted as directed by the stockholder. If no specific voting
instructions are given, the proxy will be voted FOR:
(1) |
|
The election of the eleven nominees to the Board of Directors listed in the
proxy; and |
(2) |
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The ratification of the selection of PricewaterhouseCoopers LLP as our
independent registered public accounting firm for the fiscal year ending
December 31, 2009. |
If
any other matters properly come before the Annual Meeting, including, among other things,
consideration of a motion to adjourn the Annual Meeting to another time or place, the
persons named in the accompanying proxy will vote on such matters in accordance with their
best judgment.
Any
proxy duly given pursuant to this solicitation may be revoked by the person or entity
giving it at any time before it is voted by delivering a written notice of revocation to
our Corporate Secretary, by executing a later-dated proxy and delivering it to our
Corporate Secretary, or by attending the Annual Meeting and voting in person (although
attendance at the Annual Meeting will not in and of itself constitute a revocation of the
proxy). Directions to our corporate offices may be obtained by calling (801) 345-1000, for
stockholders who plan to vote in person at the Annual Meeting.
We
will bear the cost of solicitation of proxies. Expenses include reimbursements paid to
brokerage firms and others for their expenses incurred in forwarding solicitation material
regarding the Annual Meeting to beneficial owners of our voting stock. Solicitation of
proxies will be made by mail. Our regular employees may further solicit proxies by
telephone or in person and will not receive additional compensation for such solicitation.
-1-
OUTSTANDING SHARES AND
VOTING RIGHTS
Only
stockholders of record at the close of business on March 31, 2009 are entitled to
vote at the Annual Meeting. As of the record date, approximately 63,205,607 shares of our
Class A Common Stock were issued and outstanding. Each outstanding share of
Class A Common Stock will be entitled to one vote on each matter submitted to a vote
of the stockholders at the Annual Meeting. Certain of our subsidiaries hold an aggregate
of approximately 156,733 shares of our Class A Common Stock. In accordance with
the General Corporation Law of the State of Delaware, these shares may not be voted with
respect to any of the matters presented at the Annual Meeting and shall not be counted in
determining the presence of a quorum.
In
order to constitute a quorum for the conduct of business at the Annual Meeting, a majority
of the issued and outstanding shares of the Class A Common Stock entitled to vote at
the Annual Meeting must be represented, either in person or by proxy, at the Annual
Meeting. Under Delaware law, shares represented by proxies that reflect abstentions or
broker non-votes (which are shares held by a broker or nominee that are
represented at the Annual Meeting, but with respect to which such broker or nominee is not
empowered to vote on a particular proposal) will be counted as shares that are present and
entitled to vote for purposes of determining the presence of a quorum. However, broker
non-votes will not be voted on any proposal on which your broker or other nominee does not
have discretionary authority to vote under the rules of the New York Stock Exchange.
Directors
will be elected by a favorable vote of a plurality of the shares of Class A Common
Stock present and entitled to vote, in person or by proxy, at the Annual Meeting. The
eleven nominees receiving the highest number of votes will be elected to serve as
directors. Ratification of PricewaterhouseCoopers LLP as our independent registered public
accounting firm will require the affirmative vote of a majority of the total number of
votes of outstanding shares of Class A Common Stock present in person or represented
by proxy at the Annual Meeting and entitled to vote. Abstentions and broker non-votes as
to the election of directors will not affect the election of the candidates receiving the
plurality of votes. In determining whether Proposal 2 has received the requisite
number of affirmative votes, abstentions will be counted as shares entitled to vote and
will have the same effect as votes against any such proposal. Broker non-votes, however,
will be treated as not entitled to vote for purposes of determining approval of
Proposal 2 and will not be counted as votes for or against Proposal 2. Unless
instructed to the contrary, the shares represented by proxies will be voted FOR the
election of the eleven nominees named below. Although it is anticipated that each nominee
will be able to serve as a director, should any nominee become unavailable to serve,
proxies will be voted for such other person or persons as may be designated by the Board
of Directors. Properly executed, unrevoked proxies will be voted FOR
Proposal 2 unless a vote against such proposal or abstention is specifically
indicated in the proxy.
Security Ownership of
Certain Beneficial Owners and Management
The
following table sets forth certain information regarding the beneficial ownership of our
Class A Common Stock as of March 1, 2009, by (i) each person (or group of
affiliated persons) who is known by us to own beneficially more than 5% of the outstanding
shares of the Class A Common Stock, (ii) each of our directors and director
nominees, (iii) each of our executive officers whose name appears in the summary
compensation table under the caption Executive Compensation, and (iv) all
of our executive officers and directors as a group. Unless otherwise indicated in the
footnotes to the table, the business address of the 5% stockholders is 75 West Center
Street, Provo, Utah 84601, and the stockholders listed have direct beneficial ownership
and sole voting and investment power with respect to the shares beneficially owned. For
each individual and group included in the table below, percentage ownership is calculated
by dividing the number of shares beneficially owned by such person or group by the sum of
the 63,353,802 shares of common stock outstanding on March 1, 2009, plus the
number of shares of common stock that such person or group had the right to acquire on or
within 60 days after March 1, 2009.
-2-
Directors, Executive Officers, 5% Stockholders | |
Number of Shares | |
% | |
Blake and Nancy Roney(1) |
|
|
| 8,160,202 |
|
12.9 |
|
|
Sandra Tillotson(2) | | |
| 3,603,151 |
|
5.7 | | |
Steven Lund(3) | | |
| 1,755,936 |
|
2.8 | | |
Truman Hunt(4) | | |
| 695,764 |
|
1.1 | | |
Joe Chang(5) | | |
| 248,612 |
|
* | | |
Ritch Wood(6) | | |
| 226,724 |
|
* | | |
Dan Chard(7) | | |
| 123,065 |
|
* | | |
Daniel Campbell(8) | | |
| 79,700 |
|
* | | |
E.J. "Jake" Garn(8) | | |
| 73,900 |
|
* | | |
Andrew Lipman(9) | | |
| 83,400 |
|
* | | |
Patricia Negrón(10) | | |
| 29,150 |
|
* | | |
Nevin Anderson | | |
| |
|
* | | |
Thomas Pisano | | |
| |
|
* | | |
David Ussery | | |
| |
|
* | | |
Royce & Associates, LLC(11) | | |
| 10,605,333 |
|
16.7 | | |
Wellington Management Company, LLP(12) | | |
| 5,839,057 |
|
9.2 | | |
All directors and officers as a group | | |
| 15,458,335 |
|
23.8 | | |
(17 persons)(13) | | |
(1) |
|
Includes 7,976,109 shares of Class A Common Stock held by a family limited
liability company owned entirely by Mr. and Mrs. Roney. Mr. Roney is a
co-manager of the limited liability company and has the sole right to exercise
all voting and dispositive power with respect to the shares held by the limited
liability company contributed by him. Mrs. Roney is also a co-manager and has
the sole right to exercise all voting and dispositive power with respect to the
shares held by the limited liability company contributed by her. Because of his
position and relationship to Mrs. Roney, Mr. Roney may be deemed to have shared
voting and dispositive power with respect to such shares. Also
includes 58,648 shares of Class A Common Stock held indirectly
by Mr. Roney as trustee and with respect to which he has sole voting
and investment power, for which Mr. Roney disclaims beneficial ownership,
and 125,445 shares of Class A Common Stock held indirectly by
Mr. Roney as co-trustee with respect to which he shares voting and
investment power, for which Mr. Roney disclaims beneficial ownership. |
(2) |
|
Includes 29,312 shares of Class A Common Stock held indirectly as
co-trustee and with respect to which Ms. Tillotson shares voting and
investment power, for which Ms. Tillotson disclaims beneficial ownership,
and 500,000 shares of Class A Common Stock held indirectly as manager
of a limited liability company and with respect to which she has sole voting and
investment power, for which Ms. Tillotson disclaims beneficial ownership. |
(3) |
|
Includes 1,669,103 shares of Class A Common Stock held by a family limited
liability company owned entirely by Mr. Lund and his spouse. Mr. Lund is a
co-manager of the limited liability company and has the sole right to exercise
all voting and dispositive power with respect to the shares held by the limited
liability company contributed by him. Mr. Lunds spouse is also a
co-manager and has the sole right to exercise all voting and dispositive power
with respect to the shares held by the limited liability company contributed by
her. Because of his position and relationship to Mrs. Lund, Mr. Lund may be
deemed to have shared voting and dispositive power with respect to such shares.
Also includes 72,462 shares of Class A Common Stock held indirectly by
Mr. Lund as trustee and with respect to which he has sole voting and investment
power, for which Mr. Lund disclaims beneficial ownership, and 14,371 shares
of Class A Common Stock held indirectly by Mr. Lund as co-trustee with
respect to which he has shared voting and investment power, for which Mr. Lund
disclaims beneficial ownership. |
-3-
(4) |
|
Includes 538,750 shares of Class A Common Stock that may be acquired by
Mr. Hunt pursuant to non-qualified stock options presently exercisable or
exercisable within the next 60 days. |
(5) |
|
Includes 207,399 shares of Class A Common Stock that may be acquired by
Mr. Chang pursuant to non-qualified stock options presently exercisable or
exercisable within the next 60 days. |
(6) |
|
Includes 222,375 shares of Class A Common Stock that may be acquired by
Mr. Wood pursuant to non-qualified stock options presently exercisable or
exercisable within the next 60 days. |
(7) |
|
Includes 117,750 shares of Class A Common Stock that may be acquired by
Mr. Chard pursuant to non-qualified stock options presently exercisable or
exercisable within the next 60 days. |
(8) |
|
Includes 70,000 shares of Class A Common Stock that may be acquired by each of
Mr. Campbell and Mr. Garn pursuant to non-qualified stock options presently
exercisable or exercisable within the next 60 days. |
(9) |
|
Includes 77,500 shares of Class A Common Stock that may be acquired by
Mr. Lipman pursuant to non-qualified stock options presently exercisable or
exercisable within the next 60 days. |
(10) |
|
Includes 25,000 shares of Class A Common Stock that may be acquired by
Ms. Negrón pursuant to non-qualified stock options presently
exercisable or exercisable within the next 60 days. |
(11) |
|
The information regarding the number of shares beneficially owned or deemed to
be beneficially owned by Royce & Associates, LLC was taken from a
Schedule 13G filed by that entity with the Securities and Exchange
Commission dated January 27, 2009. The address of Royce and
Associates, LLC is 1414 Avenue of the Americas, New York, NY 10019. |
(12) |
|
The information regarding the number of shares beneficially owned or deemed to
be beneficially owned by Wellington Management Company, LLP was taken from a
Schedule 13G filed by that entity with the Securities and Exchange
Commission dated February 17, 2009. The address of Wellington
Management Company is 75 State Street, Boston, Massachusetts 02109. |
(13) |
|
Includes 1,687,873 shares of Class A Common Stock that may be acquired upon
exercise of non-qualified stock options presently exercisable or exercisable
within the next 60 days. |
-4-
PROPOSAL 1
ELECTION OF DIRECTORS
Directors
are elected at each annual meeting of stockholders and hold office until their successors
are duly elected and qualified at the next annual meeting of stockholders. Our Bylaws
provide that the Board of Directors will consist of a minimum of five and a maximum of
eleven directors, with the number being designated by the Board of Directors. The current
number of authorized directors is eleven.
Each
of our current directors was previously elected to his or her present term of office by
our stockholders. Each of the nominees is currently a director of our company.
THE BOARD OF DIRECTORS
RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE ELEVEN NOMINEES TO OUR BOARD OF
DIRECTORS
Set
forth below are the name, age as of April 17, 2009, and business experience of each of the
eleven nominees for election as our directors, listed in alphabetical order:
Nevin
N. Andersen, 68, has served as a director of our company since June 2008. Mr. Andersen
is currently retired. Mr. Andersen previously served in various positions, including
Senior Vice President and Chief Financial Officer, Vice President and Corporate
Controller, and Director of Internal Audit at Shaklee Corporation, a direct selling
company, from June 1979 to February 2003, when he retired. He was asked to return to
Shaklee Corporation for a period of time to serve as the Interim Chief Financial Officer
and to help in the transition with a new Chief Financial Officer, which role he fulfilled
from March 2005 to February 2008. Prior to initially working at Shaklee Corporation in
1979, he worked for Price Waterhouse & Co., and served as an officer in the U.S. Army
Finance Corps. He received M.Acc and B.S. degrees from Brigham Young University.
Daniel
W. Campbell, 54, has served as a director of our company since March 1997 and
currently serves as our Lead Independent Director. Mr. Campbell has been a Managing
General Partner of EsNet, Ltd., a privately held investment company, since 1994. From 1992
to 1994, Mr. Campbell was the Senior Vice President and Chief Financial Officer of
WordPerfect Corporation, a software company, and prior to that was a partner of Price
Waterhouse LLP. He currently serves as a director and as chairman of the audit committee
of The SCO Group, Inc., a provider of software solutions for businesses. He received a
B.S. degree from Brigham Young University.
E.J.
Jake Garn, 76, has served as a director of our company since
March 1997. Senator Garn has been a self-employed consultant since June 2004. He
served as a Managing Director of Summit Ventures, LLC, a lobbying firm, from
2000 to May 2004, when he retired. He currently serves on the boards of
directors of Franklin Covey Co., a provider of time management seminars and
products, Headwaters, Inc., a provider of products, technologies and services to
the energy, construction and home improvement industries, and United Space
Alliance, a space operations company. He also serves as Chairman of Primary
Childrens Medical Center Foundation and is involved in various other
private/public sector endeavors. From 1974 to 1993, Senator Garn was a member of
the United States Senate and served on numerous Senate Committees. He received a
B.S. degree from the University of Utah.
M.
Truman Hunt, 50, has served as our President since January 2003 and
our Chief Executive Officer since May 2003. He has also served as a director of
our company since May 2003. Mr. Hunt joined our company in 1991 and has
served in various positions, including Vice President and General Counsel from
1996 to January 2003 and Executive Vice President from January 2001 until
January 2003. He received a B.S. degree from Brigham Young University and a J.D.
degree from the University of Utah.
-5-
Andrew
D. Lipman, 57, has served as a director of our company since May 1999. Mr. Lipman is a
partner and head of the Telecommunications, Media and Technology Group of Bingham
McCutchen LLP, an international law firm. Mr. Lipman previously held a similar position
from 1988 with Swidler Berlin, LLP, which merged with Bingham McCutchen in 2006. He also
currently serves as a member of the boards of directors of Sutron Corporation, a provider
of hydrological and meteorological monitoring products, and The Management Network Group,
Inc., a telecommunications related consulting firm. He received a B.A. degree from the
University of Rochester and a J.D. degree from Stanford Law School.
Steven
J. Lund, 56, has served as a director and Vice Chairman of our company since September
of 2006. Prior to this, he was on a three year leave of absence serving on a church
assignment in Georgia. Mr. Lund served as President, Chief Executive Officer, and a
director of our company from 1996, when our company went public, until his 2003 leave of
absence. Mr. Lund was a founding shareholder of our company. Mr. Lund worked as an
attorney in private practice prior to joining our company as Vice President and General
Counsel. He received a B.A. degree from Brigham Young University and a J.D. degree from
Brigham Young Universitys J. Reuben Clark Law School.
Patricia
A. Negrón, 42, has served as a director of our company since June 2005. Since
2001, Ms. Negrón has worked as an independent business consultant to private
clients and became an advisor to Goode Partners, LLC, a private equity firm, in
February 2006. In 1999, Ms. Negrón launched the financial advisory group at
Breakaway Solutions, an internet consulting firm, which she managed until 2001.
Previously, Ms. Negrón was Vice President, Equity Research at the investment
banking firm Adams, Harkness & Hill. From 1992 until 1996, she managed the
corporate governance division, and later expanded into equity research and managing
the firms econometric model, at United States Trust Company, Boston. She has a
B.S. degree from Armstrong Atlantic State University and a Certificate of Special Studies
in Administration and Management from Harvard University Extension School.
Thomas
R. Pisano, 64, has served as a director of our company since June 2008. He has been
the Chief Executive Officer and a Director of Overseas Military Sales Corp., a marketer of
motor vehicles, since January 2005. From August 1998 to December 2004, he served as the
Chief Operating Officer and Director of Overseas Military Sales Corp. From February 1995
to December 1997, he served as Vice President, Head of the International Division, for The
Topps Company, Inc., a sports publications and confectionery products company. Prior to
that, he served in various positions, including Vice President, Global New Business
Development, for Avon Products, Inc., a direct seller of personal care products, from 1969
to 1994. He received a B.S. from the Georgia Institute of Technology and an M.B.A. from
Dartmouth College.
Blake
M. Roney, 51, founded our company in 1984 and served as its president through
1996. Mr. Roney currently serves as the Executive Chairman of the Board, a position he has
held since our company went public in 1996. Mr. Roney is also a trustee of the Force for
Good Foundation, a charitable organization that was established in 1996 by Mr. Roney and
the other founders of our company to help encourage and drive the philanthropic efforts of
our company, its employees, its distributors and its customers to enrich the lives of
others. He received a B.S. degree from Brigham Young University.
Sandra
N. Tillotson, 52, co-founded our company and has served as Vice President, Senior Vice
President and a director of our company since it went public in 1996. Ms. Tillotson is
also a trustee of the Force for Good Foundation and Vice President of Seacology, an
international environmental nonprofit organization. She earned a B.S. degree from Brigham
Young University.
-6-
David
D. Ussery, 73, has served as a director of our company since June 2008. Mr. Ussery
previously served as President and Representative Director of Amway Japan Limited &
Amway Korea Limited, direct selling companies, from April 2002 to January 2008, when he
retired. From April 2002 to April 2005, he served as President and Representative Director
of Amway Japan Limited. From 1992 to 2002, he served in various other positions for Amway
Korea Limited and Amway Philippines, L.L.C. In addition, he has approximately 30 years of
experience working for Avon Products, Inc., a direct seller of personal care products,
including as Vice President of Field Operations for the United States and Canada, Area
Vice President of Avon Pacific and Chairman of the Board of Avon Japan. He received a
B.B.A. degree from Georgia State University.
We
are not aware of any family relationships among any of our directors or executive
officers. Our Certificate of Incorporation contains provisions eliminating or limiting the
personal liability of directors for violations of a directors fiduciary duty to the
extent permitted by the Delaware General Corporation Law.
CORPORATE GOVERNANCE
Director Independence
The
Board of Directors has determined that each of the current directors, listed below, is an
independent director under the listing standards of the New York Stock
Exchange.
Nevin Andersen
Daniel Campbell
E.J. Jake
Garn
Andrew Lipman
Patricia Negrón
Thomas Pisano
David Ussery
In
assessing the independence of the directors, the Board of Directors determines whether or
not any director has a material relationship with us (either directly or as a partner,
shareholder or officer of an organization that has a relationship with us). The Board of
Directors considers all relevant facts and circumstances in making independence
determinations, including the existence and scope of any commercial, industrial, banking,
consulting, legal, accounting, charitable and familial relationships.
With
respect to Mr. Lipmans independence, the Board also considered that he is a partner
in the law firm Bingham McCutchen LLP. Bingham McCutchen provides legal services to us
primarily in connection with contractual and regulatory issues associated with our
technology products and services. The Board has determined that Mr. Lipmans
relationship with us is not material based on all relevant facts and circumstances,
including the following: (i) the fees we paid to Bingham McCutchen during 2008 were
approximately $17,675, which is an insignificant amount of Bingham McCutchens
revenues, and (ii) the fees we paid for these services were not paid directly to Mr.
Lipman, rather they were paid to the law firm at which Mr. Lipman is a partner.
Board of Directors
Meetings
The Board
of Directors held 7 meetings during the fiscal year ended December 31, 2008. Each
incumbent director attended at least 75% of the total number of meetings of the Board of
Directors and the total number of meetings of all committees of the Board of Directors on
which that director served during the period. Although we encourage board members to
attend our annual meetings of stockholders, we do not have a formal policy regarding
director attendance at annual stockholder meetings. Five of the current directors attended
our 2008 annual meeting of stockholders.
-7-
The
non-management directors meet regularly in executive sessions, as needed, without the
management directors or other members of management. Daniel Campbell, the Lead Independent
Director, presides at such executive sessions.
We
have standing Audit, Compensation and Nominating and Corporate Governance Committees. Each
member of the committees is independent within the meaning of the listing standards of the
New York Stock Exchange.
The
following table identifies the current membership of the committees and states the number
of committee meetings held during 2008.
Director |
|
Audit |
|
Compensation |
|
Nominating and Corporate
Governance | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nevin Andersen |
|
X |
|
|
|
|
|
Daniel Campbell |
|
X* |
|
|
|
X |
|
E.J. "Jake" Garn |
|
|
|
X* |
|
X |
|
Andrew Lipman |
|
|
|
X |
|
X* |
|
Patricia Negrón |
|
X |
|
X |
|
|
|
Thomas Pisano |
|
X |
|
|
|
|
|
David Ussery |
|
|
|
X |
|
|
|
Number of Meetings in 2008 |
|
10 |
|
10 |
|
10 |
|
The
Board of Directors has adopted a written charter for each of the committees, which are
available at our website at http://www.nuskinenterprises.com. In addition, stockholders
may obtain a print copy of any of these charters by making a written request to Scott
Pond, Investor Relations Manager, Nu Skin Enterprises, Inc., 75 West Center Street,
Provo, Utah 84601.
The
Board of Directors has determined that Daniel Campbell and Nevin Andersen are Audit
Committee financial experts as such term is defined in Item 407(d)(5) of
Regulation S-K promulgated by the Securities and Exchange Commission. The Audit
Committees responsibilities include, among other things:
|
|
|
selecting
our independent registered public accounting firm; |
|
|
|
reviewing
the activities and the reports of the independent registered public accounting firm; |
|
|
|
reviewing
our quarterly and annual financial statements and our significant accounting policies,
practices and procedures; |
|
|
|
approving
in advance the audit and non audit services provided by the independent registered public
accounting firm; and |
|
|
|
reviewing
the adequacy of our internal controls and internal auditing methods and procedures. |
The
Compensation Committees responsibilities include, among other things:
|
|
|
overseeing
and approving compensation policies and programs; |
-8-
|
|
|
reviewing
and approving corporate goals and objectives relevant to the compensation to be paid to
our chief executive officer and other executive officers; |
|
|
|
establishing
the salaries, bonuses, and other compensation to be paid to our chief executive officer
as well as approving the compensation for the other executive officers; |
|
|
|
administering
our incentive plans; and |
|
|
|
overseeing
regulatory compliance with respect to executive compensation matters. |
For a
discussion of the processes and procedures for determining executive and director
compensation and the role of compensation consultants in determining or recommending the
amount or form of compensation, see Compensation Discussion and Analysis and
Compensation of Directors.
The
Nominating and Corporate Governance Committees responsibilities include, among other
things:
|
|
|
making
recommendations to the Board of Directors about the size and membership criteria of the
Board of Directors or any committee thereof; |
|
|
|
identifying
and recommending candidates for the Board of Directors and committee membership,
including evaluating director nominations received from stockholders; |
|
|
|
determining
the compensation and benefits for services as a director; |
|
|
|
developing
and recommending to the Board of Directors corporate governance principles applicable to
us; and |
|
|
|
leading
the process of identifying and screening candidates for a new chief executive officer
when necessary, and evaluating the performance of the chief executive officer. |
Our Director Nominations
Process
As
indicated above, the Nominating and Corporate Governance Committee of the Board of
Directors oversees the director nomination process. This committee is responsible for
identifying and evaluating candidates for membership on the Board of Directors and
recommending to the Board of Directors nominees to stand for election.
Minimum
Criteria for Members of the Board of Directors. Each candidate to serve on the Board
of Directors must possess the highest personal and professional ethics, integrity and
values, and be committed to serving the long-term interests of our stockholders. Other
than the foregoing, there are no stated minimum criteria for director nominees, although
the Nominating and Corporate Governance Committee may consider such other factors as it
may deem appropriate, which may include, without limitation, professional experience,
diversity of backgrounds, skills and experience at policy-making levels in business,
government, financial, and in other areas relevant to our global operations, experience
and history with our company, and stock ownership.
Process
for Identifying, Evaluating and Recommending Candidates. The Nominating and Corporate
Governance Committee will consider director candidates recommended by stockholders if
properly submitted to the committee. Stockholders wishing to recommend candidates should
do so in writing to the Nominating and Corporate Governance Committee, c/o D. Matthew
Dorny, Corporate Secretary, Nu Skin Enterprises, Inc., 75 West Center Street, Provo, Utah
84601. Recommendations must include the proposed candidates name, detailed
biographical data, work history, qualifications and corporate and charitable affiliations.
The committee may also consider candidates proposed by current directors, management,
employees and others. All such candidates who, after evaluation, are then recommended by
the Nominating and Corporate Governance Committee and approved by the Board of Directors,
will be included in our recommended slate of director nominees in our proxy statement.
-9-
Procedures
for Stockholders to Nominate Director Candidates at our Annual Meetings. Stockholders
of record may also nominate director candidates for our annual meetings of stockholders by
following the procedures set forth in our Bylaws. Please refer to the section below
entitled Stockholder Proposals for 2010 Annual Meeting for further
information.
Additional Corporate
Governance Information
We
have also adopted the following:
Code
of Conduct. This code applies to all of our employees, officers and directors,
including our subsidiaries. As noted below, this code is available on our website. In
addition, any substantive amendments we make to this code, and any material waivers we
grant (including implicit waivers) to our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing similar
functions will be disclosed on our website.
Corporate
Governance Guidelines. These guidelines govern our company and our Board of Directors
on matters of corporate governance, including responsibilities, committees of the Board of
Directors and their charters, director independence, director qualifications, director
compensation and evaluations, director orientation and education, director access to
management, director access to outside financial, business and legal advisors and
management development and succession planning.
Stock
Retention Guidelines. In January 2005, we established equity retention guidelines
applicable to our directors and executive officers. These guidelines provide that
executive officers and directors must retain 50% of the net shares (after payment of
the exercise price and related taxes) with respect to any equity award unless the
individual holds a number of shares equal to the ownership levels set forth in the
guidelines. The ownership levels are phased in over a five-year period for executive
officers. Outstanding options are not counted in determining whether a director or officer
holds shares equal to or greater than the recommended level. At the end of the five-year
phase-in period, the recommended ownership levels are set at 100,000 shares for our Chief
Executive Officer, 5,000 shares for directors and 20,000 shares for members of our
executive management committee.
Each
of the above is available on our website at http://www.nuskinenterprises.com. In addition,
stockholders may obtain a print copy of any of the above, free of charge, by making a
written request to Scott Pond, Investor Relations Manager, Nu Skin Enterprises, Inc., 75
West Center Street, Provo, Utah 84601.
Communications with
Directors
Stockholders
or other interested parties wishing to communicate with the Board of Directors, the
non-management directors as a group, or any individual director may do so in writing by
addressing the correspondence to that individual or group, c/o D. Matthew Dorny,
Corporate Secretary, Nu Skin Enterprises, Inc., 75 West Center Street, Provo, Utah 84601.
All such communications will be initially received and processed by our Corporate
Secretary. Accounting, audit, internal accounting controls and other financial matters
will be referred to our Audit Committee chairperson. Other matters will be referred to the
Board of Directors, the non-management directors, or individual directors as appropriate.
-10-
Compensation of Directors
Each
director who does not receive compensation as an officer or employee of our company or our
affiliates is entitled to receive an annual retainer fee of $35,000 for serving on
the Board of Directors, a fee of $1,500 for each meeting of the Board of Directors or
any committee meeting thereof attended, and an additional fee of $1,000 for each
committee meeting attended if such director is the chairperson of that committee. The Lead
Independent Director receives an additional annual retainer fee of $10,000 for
service in that position. The Audit Committee chairperson receives an annual retainer fee
of $15,000 and all other committee chairpersons receive a $10,000 annual
retainer fee. In addition, we may compensate a director $1,500 per day for corporate
events or travel we require. Each director may be reimbursed for certain expenses incurred
in attending Board of Directors and committee meetings and other corporate events. We also
provide company products to our directors for their use.
In
addition, each non-management director annually receives a stock option to
purchase 5,000 shares and 1,400 restricted stock unit awards under the 2006
Stock Incentive Plan. Both the stock options and the restricted stock units will vest on
the date preceding the next annual meeting of stockholders. In February 2009, each
non-management director also received a special grant of 10,100 options. Each director
also had the right to receive 4,900 additional options in lieu of receiving the 1,400
restricted stock units.
Our
Board of Directors periodically reviews director compensation. The Nominating and
Corporate Governance Committee is responsible for evaluating director compensation from
time to time and making any adjustments it determines are appropriate.
Director Compensation
Table 2008
The
table below summarizes the compensation paid to and earned by each of our directors
in 2008 except for Blake Roney and Truman Hunt, whose compensation is reported in the
executive compensation tables. Truman Hunt, Blake Roney, Steven Lund and Sandra Tillotson
each serve as directors, but as company employees, they receive no compensation for their
services as directors.
Name |
Fees Earned or Paid in Cash ($) |
Stock Awards ($)(1)(2) |
Option Awards ($)(1)(3) |
All Other Compensation ($) |
Total ($)(4) |
Nevin Andersen |
|
|
| 50,000 |
|
| 10,838 |
|
| 11,507 |
|
| |
|
| 72,345 |
|
Daniel Campbell | | |
| 113,500 |
|
| 20,073 |
|
| 23,852 |
|
| |
|
| 157,425 |
|
Christine Day(5) | | |
| 12,000 |
|
| 8,994 |
|
| 12,063 |
|
| |
|
| 33,057 |
|
E.J. "Jake" Garn | | |
| 97,000 |
|
| 20,073 |
|
| 23,852 |
|
| |
|
| 140,925 |
|
Andrew Lipman | | |
| 105,000 |
|
| 20,073 |
|
| 23,852 |
|
| |
|
| 148,925 |
|
Patricia Negrón | | |
| 83,000 |
|
| 20,073 |
|
| 23,852 |
|
| |
|
| 126,925 |
|
Thomas Pisano | | |
| 50,000 |
|
| 10,838 |
|
| 11,507 |
|
| |
|
| 72,345 |
|
David Ussery | | |
| 51,500 |
|
| 10,838 |
|
| 11,507 |
|
| |
|
| 73,845 |
|
Desmond Wong(5) | | |
| 9,000 |
|
| |
|
| |
|
| |
|
| 9,000 |
|
Steven Lund(6) | | |
| |
|
| |
|
| |
|
| 828,872 |
|
| 828,872 |
|
Sandra Tillotson(7) | | |
| |
|
| |
|
| |
|
| 691,473 |
|
| 691,473 |
|
(1) |
|
These columns represent the dollar amount recognized for financial statement
reporting purposes for the fiscal year ended December 31, 2008, in
accordance with SFAS 123(R) of equity awards granted to the directors,
and thus may include amounts from awards granted in and prior to 2008.
Pursuant to the SEC rules, the amounts shown exclude the impact of estimated
forfeitures related to service-based vesting conditions. Assumptions used in the
calculation of these amounts are included in the notes to our financial
statements in our annual reports on Form 10-K, as filed with the SEC. These
amounts reflect our accounting expense for these awards, and do not correspond
to the actual value that will be realized by the directors upon vesting or
exercise of these awards. The dollar amounts in these columns are related to the
following awards: On May 14, 2007, Mssrs. Campbell, Garn and Lipman and Ms.
Negron each received a stock option grant for 5,000 shares with a grant date
fair value under SFAS 123(R) of $32,550, or $6.51 per share, and a
restricted stock grant of 1,400 shares with a grant date fair value
under SFAS 123(R) of $24,290, or $17.35 per share; On May 15, 2007,
Ms. Day received a stock option grant for 5,000 shares with a grant date fair
value under SFAS 123(R) of $32,550, or $6.51 per share, and a
restricted stock grant of 1,400 shares with a grant date fair value
under SFAS 123(R) of $24,262, or $17.33 per share; On June 25, 2008,
Mssrs. Campbell, Garn and Lipman and Ms. Negron each received a stock
option grant for 5,000 shares with a grant date fair value
under SFAS 123(R) of $22,900, or $4.58 per share, and a restricted
stock grant of 1,400 shares with a grant date fair value
under SFAS 123(R) of $21,448, or $15.32 per share; and On June 26,
2008, Mssrs. Andersen, Pisano and Ussery each received a stock option grant
for 5,000 shares with a grant date fair value under SFAS 123(R) of
$22,300, or $4.46 per share, and a restricted stock grant of 1,400 shares with a
grant date fair value under SFAS 123(R) of $20,986, or $14.99 per
share. |
-11-
(2) |
|
As of December 31, 2008, the non-employee directors named in this table, other
than Ms. Day and Mr. Wong, held 1,400 unvested restricted stock unit awards. |
(3) |
|
As of December 31, 2008, the non-employee directors named in this table had the
following stock options outstanding: Mr. Andersen, 5,000;
Mr. Campbell, 75,000; Ms. Day, 5,000; Mr. Garn, 75,000;
Mr. Lipman, 82,500; Ms. Negrón, 30,000; Mr. Pisano, 5,000; Mr.
Ussery, 5,000; Mr. Wong, none. |
(4) |
|
Does not include travel related expenses of spouses of certain non-employee
directors or products received by each of the non-employee directors, the
aggregate amount of which is less than $10,000 per non-employee director. |
(5) |
|
Mr. Wong resigned as a director of our company on April 8, 2008 and Ms. Day
declined to stand for reelection at our 2008 annual meeting. |
(6) |
|
As reflected in the table under All Other Compensation, Mr. Lund
received compensation as an employee of the company for 2008, including a salary
of $500,000, an incentive plan bonus of $92,543, discretionary bonuses of
$182,652 and other compensation of $53,677, including $34,946 of distributor
event related travel expenses of Mr. Lunds spouse. |
(7) |
|
As reflected in the table under All Other Compensation, Ms.
Tillotson received compensation as an employee of the company for 2008,
including a salary of $400,000, an incentive plan bonus of $74,034,
discretionary bonuses of $146,122 and other compensation of $71,317, including
$20,000 related to attending and speaking at international distributor events. |
SECTION 16(a)
BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our officers and
directors and persons who own beneficially more than 10% of a registered class of our
equity securities to file with the Securities and Exchange Commission and the New York
Stock Exchange initial reports of ownership and reports of changes in ownership of our
equity securities. Officers, directors, and greater than 10% beneficial owners are
required to furnish us with copies of all Section 16(a) reports they file. Based solely
upon a review of the copies of such reports furnished to us or written representations
that no other reports were required, we believe that during the fiscal year ended December
31, 2008, all officers, directors, and greater than 10% beneficial owners complied with
all applicable Section 16(a) filing requirements.
-12-
EXECUTIVE COMPENSATION
Compensation
Discussion and Analysis
Overview
Our Compensation
Committee is responsible for establishing and administering our executive compensation
program, which consists of a variety of components, including base salary, cash incentive
bonuses, equity awards, and retirement benefits. This compensation discussion and analysis
is intended to provide more information regarding:
|
|
|
our
compensation objectives; |
|
|
|
the
various components of our compensation program and how they relate to our objectives; |
|
|
|
the
factors taken into consideration in establishing the levels of compensation or
participation in these various components; and |
|
|
|
the
compensation decisions during the year related to the compensation of the Chief Executive
Officer, the Chief Financial Officer, and the other executive officers listed in the
summary compensation table (the named executive officers) and factors and
analysis related to such decisions. |
Objectives
The
primary objectives of our compensation program are to:
|
|
|
successfully
recruit and retain experienced and talented executives; |
|
|
|
provide
competitive compensation arrangements that are linked to corporate and individual
performance; and |
|
|
|
align
the financial interests of our executives with those of our stockholders. |
The following
table identifies each of the key components of our compensation program and the primary
objectives that each of the components is designed to accomplish:
|
|
Component of Compensation Program |
|
|
Primary Objective |
|
|
|
|
Base Salary | | |
Retention | | |
|
|
Discretionary Bonuses | | |
Retention | | |
| | |
Pay-for-Performance | | |
|
|
Cash Incentive Plan | | |
Pay-for-Performance | | |
| | |
Stockholder Alignment | | |
|
|
Equity Incentive Plan | | |
Pay-for-Performance | | |
| | |
Stockholder Alignment | | |
| | |
Retention | | |
|
|
Retirement and Deferred Compensation Plans | | |
Retention | | |
|
|
Severance Arrangements | | |
Retention | | |
-13-
We
also provide perquisites and other personal benefits to executive officers that represent
a very small portion of their overall compensation.
Process for Determining
Compensation
Role of Compensation
Committee and Chief Executive Officer
The
Compensation Committee is responsible for evaluating the performance of the Chairman and
the Chief Executive Officer relative to their performance goals and targets and for
setting their compensation. The Compensation Committee has given the Chief Executive
Officer the responsibility of evaluating the performance of the other executive officers
and discussing the evaluations with the Compensation Committee. The Chairman and Chief
Executive Officer can also make recommendations to the Compensation Committee with regard
to the compensation packages for new executive officers and/or adjustments in compensation
for other executive officers. The Compensation Committee reviews any such recommendations
and has the authority to approve, revise, or reject such recommendations.
Use of Compensation
Consultants and Survey Data
The
Compensation Committee has retained the services of Frederic W. Cook & Co. as its
independent compensation consultant to assist the Compensation Committee in the review of
our executive compensation program, to provide compensation data and alternatives to the
Compensation Committee, and to provide advice to the Compensation Committee as requested.
The compensation consultant engaged by the Compensation Committee does not perform any
work for our company outside of the services it performs for the Compensation Committee
except that the Compensation Committee has authorized the consultant to provide survey
data related to compensation decisions for key employees. The Compensation Committee has
authorized such limited additional services as they determined such services help ensure
that similar survey data is utilized for other key employees and does not impair the
independence of the consultant. We utilize the compensation data and alternatives provided
by the compensation consultant to analyze compensation decisions in light of current
market rates and practices, and to help ensure that our compensation decisions are
competitive in the market and economically defensible. We compare the compensation
proposals for our named executive officers to the compensation practices of a peer group
of publicly-traded companies that compete in our industry or are similar in size to us.
The competitive cash compensation data provided by Frederic W. Cook & Co. includes
limited use of national survey data calibrated for all industries for companies with
similar revenue levels as us. The group is reviewed and updated by the Compensation
Committee from time to time to insure we are utilizing an appropriate group in terms of
size and relevance. The group was most recently reviewed and revised in November 2007 by
the Compensation Committee taking into account the input and recommendations of Fredric W.
Cook & Co. Based on the analysis at such time, our company was at the median of this
group with respect to revenue and market capitalization. Peer group information and other
data is only one factor used by the Compensation Committee in making decisions. The
following table indicates the companies that are included in our peer group.
-14-
|
|
PeerGroup Bare
Escentuals Blyth Chattern CSS Industries Elizabeth Arden Gaiam Herbalife Inter Parfums NBTY Perrigo Playtex
Products Prestige Brands Sensient Tupperware Brands Usana Health Sciences |
We also use survey data from other
sources to supplement the data provided by our compensation consultant. In February 2008,
we utilized survey data from CompAnalyst, which is a combination of the top five surveys
in the US such as Watson Wyatt and Mercer.
Mix of Compensation
When
we review the compensation for an executive, we do not use a specific formula or
allocation targets to establish the level or mix of compensation. Rather, we exercise
judgment in determining a mix of compensation that we believe is appropriate to accomplish
our compensation objectives under the circumstances applicable to the executive. We also
take into consideration the relative mix of compensation provided by other companies and
try to make sure each component is competitive. When reviewing one component of
compensation, we will consider the compensation paid under other components. Historically,
a majority of target compensation is typically tied to corporate performance in the form
of our cash incentive plans and our equity incentive plans.
Components of
Compensation
Base Salaries
In
establishing and approving base salaries, we consider various factors including:
|
|
|
current
market practices and salary levels; |
|
|
|
the
nature of each executive officer's responsibilities and capabilities; |
|
|
|
individual
performance and the performance of our company; |
|
|
|
the
overall total direct compensation of an executive officer, consisting of base salary,
targeted cash incentive payments and other cash payments, and equity incentive awards; |
|
|
|
competitive
offers made to executive officers and the level of salary that may be required to recruit
or retain our executive officers; and |
|
|
|
the
recommendations of the Chairman of the Board and the Chief Executive Officer for officers
other than themselves. |
-15-
Base
salaries are typically reviewed annually during our evaluation period in February and
March. We do not assign any specific weights to the factors identified above, but
emphasize establishing base salaries that are competitive with the salaries paid by other
companies in order to enable us to attract and retain qualified and effective executive
officers. In order to remain competitive, we use the median level to 75th
percentile from our peer group and industry surveys as a guideline for base salaries.
However, these levels are merely guidelines, and we set salaries above and below these
guidelines depending on various factors, including corporate and individual performance,
experience in the position, the uniqueness of the position and responsibility, levels of
other compensation components, and level of retention risk.
The
salary of Mr. Hunt was reviewed last year by the Compensation Committee as part of a
review of Mr. Hunts overall compensation. The Compensation Committee took into
consideration that Mr. Hunt unilaterally reduced his own base salary in 2006 from $665,000
to $550,000 when Nu Skins operating income declined and we were in the middle of
implementing a transformation initiative to improve organization alignment and improve
operating efficiencies. The Compensation Committee also took into consideration Mr.
Hunts performance as well as our corporate performance and competitive compensation
data. Based on such review, Mr. Hunts salary was increased from $550,000 to $750,000
in May 2008. In connection with such adjustment, however, Mr. Hunts dividend
equivalent payment, which amounted to $135,000 in cash compensation in 2007, was
terminated. The decision to increase Mr. Hunts base salary was based on Mr.
Hunts performance and our overall corporate performance, as evidenced by the
significant progress that had been made to align the organization and improve operating
efficiencies, the reduction in Mr. Hunts salary in 2006 discussed above, the fact
that Mr. Hunts salary was significantly below the 50th percentile of our
peer group, and the offsetting impact of the elimination of the dividend equivalent
payment.
The
salaries of the other named executive officers were also reviewed at the beginning of 2008
and no adjustments were made to those salaries in 2008 except that Mr. Chard received an
increase in salary of $25,000 per the terms of his employment letter. In February 2009,
the Compensation Committee reviewed the base salaries of the named executive officers and
increased the base salary of each of Mr. Chard and Mr. Wood from $350,000 to $375,000. Key
factors that the Compensation Committee considered in this decision included the
contributions of each of these executives to the solid performance of the company in 2008
(as described below under the bonus discussion), Mr. Hunts evaluation of their
individual performance and his recommendations regarding their base salary adjustments,
and compensation data for similar positions. No changes were made to the base salaries of
the other named executive officers.
Cash Incentive Bonuses
Consistent
with our objective to tie a significant portion of the executive officers
compensation to our financial performance, we have adopted the 2006 Senior Executive
Incentive Plan that pays incentive bonuses based on our performance. The plan was designed
to motivate executive officers and reward them for meeting their short-term operating
targets. For 2008, we made several changes to the operation of the plan in an attempt to
increase the alignment of incentives provided under the plan to the interests of our
stockholders. First, we tied 50% of the target bonus to meeting annual incentive targets
rather than semi-annual targets. Second, we tied payment of bonuses to meeting earnings
per share rather than operating income as the profitability measure for 2008. Third, we
tied 50%, as opposed to 30%, of the target bonus to profitability. Fourth, we decided that
all annual and quarterly targets would be established at the first of the year.
Previously, quarterly and semi-annual targets for the second-half of the year were
reviewed and established following the conclusion of the second quarter. Finally, we
decided that performance under the plan would not be calculated using fixed foreign
currency exchange rates as had been done in the past, but would be based on our actual
reported financial results except the measurement of actual performance would be adjusted
to eliminate the impact of swings in the yen to the extent the yen moved outside of a
pre-established range.
-16-
As
discussed below in the discussion of discretionary bonuses, dramatic and unanticipated
foreign currency swings impacted the measurement of performance under the plan more than
had been anticipated when the changes to the operation of the plan were made at the end of
2007. Because we believe that the impact of such dramatic swings resulted in performance
measurements that did not accurately reflect the performance of management, we have
elected to calculate targets and actual performance in 2009 using constant currency rates
to eliminate the impact of foreign currency swings. We also decided to use operating
income as opposed to earnings per share as the profitability measure for 2009.
Bonuses
are computed under the plan based upon the degree to which the targeted performance
measures were met or exceeded. We establish incentive targets at three levels, referred to
as Minimum, Budget, and Stretch targets. If Budget
targets are met for a particular incentive period, a participant will receive a bonus
amount equal to the pre-established percentage of salary (the Target Bonus).
If a Budget target is not met, the bonus amount decreases linearly until reaching 50% of
the Target Bonus at the Minimum target level. No bonus is paid if Minimum profitability
targets are not met. To the extent actual revenue or profitability measures exceed Budget
level, the bonus amount increases linearly above the Target Bonus until reaching 200% of
the Target Bonus at the Stretch level. If performance exceeds the Stretch level, the bonus
amount increases in proportion to the extent to which Stretch targets are exceeded, but
may not exceed $3 million under the terms of the plan. The Compensation Committee has the
discretion to exclude extraordinary, infrequent or non-operational items or amounts from
the calculations to the extent it determines appropriate. During the last three years,
bonuses at the corporate level have been earned for 6 of the 12 quarterly incentive
periods, and two of the five semi-annual/annual periods. Approximately 7 of the bonuses
were paid out below the Target Bonus level. Based on our review of the plan, our
performance compared to our peer group, and the relative level of bonuses earned by our
executives compared to our peer group, we believe that the level of bonuses paid under the
plan has been reflective of and consistent with corporate performance.
We
set the targeted level of bonuses (the Target Bonus Percentages) based on an
executive officers position and responsibility and market practices. The target
levels are intended to tie a meaningful portion of an executive officers total cash
compensation to our performance. We have set Mr. Hunts target bonus percentage at
100%, which is in line with the market practices of our peer group. Because we believe
that our other top corporate executives should work as a team and share the responsibility
to support the goals and performance of our company, we have typically structured our cash
incentives for these executives to be similar in size and composition. The target bonuses
for our named executive officers are set at 60% and are tied to the same targets as Mr.
Hunts.
Incentive Plan Targets
The
table below sets forth the earnings per share and revenue targets for the incentive
periods in 2008, the actual performance both in amount and as a percentage of the Budget
Target, and the percentage of the Target Bonus that was earned.* The total dollar amount
of the bonuses earned is set forth in the Summary Compensation Table.
-17-
(dollar amounts expressed in thousands) |
|
Q1 2008 | |
Q2 2008 | |
Q3 2008 | |
Q4 2008 | |
Annual | |
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
Budget Target | |
289,080 |
|
304,457 |
|
309,549 |
|
320,353 |
|
1,223,439 |
|
Actual | |
295,020 |
|
318,251 |
|
309,894 |
|
303,844 |
|
1,227,008 |
|
% of Budget Target | |
102% |
|
105% |
|
100% |
|
95% |
|
100% |
|
% of Target Bonus | |
155% |
|
201% |
|
% |
|
% |
|
% |
|
| |
EPS | |
Budget Target | |
$0.26 |
|
$0.30 |
|
$0.32 |
|
$0.38 |
|
$1.25 |
|
Actual | |
$0.25 |
|
$0.27 |
|
$0.26 |
|
$0.32 |
|
$1.04 |
|
% of Budget Target | |
97% |
|
89% |
|
81% |
|
84% |
|
83% |
|
% of Target Bonus | |
87% |
|
51% |
|
% |
|
% |
|
% |
|
*Pursuant
to the formulas established by the Compensation Committee, the impact of fluctuations of
the yen was capped at 108 yen. Differences between actual results reported in the table
above and results reported in our audited financial statements are a result of the
difference between the yen rate used in our financial statement and the capped rate of
108. The actual weighted average rate during each incentive period was 104.96, 104.60,
107.62, 95.66 and 102.98, for the first quarter, second quarter, third quarter, fourth
quarter, and annual period, respectively. The spot rate at the end of each period (used to
calculate foreign currency transaction gains and losses in other income) was 99.69,
106.18, 106.35, 90.73, and 90.73, for the first quarter, second quarter, third quarter,
fourth quarter and annual period, respectively.
Other Bonus
We
retain the right to make discretionary bonuses to executive officers for excellent
performance and other factors. We believe that it is appropriate to reward for superior
individual performance in exceptional circumstances. However, we have generally only
approved discretionary bonuses in limited circumstances.
As
indicated above, bonuses were not earned by the named executive officers under the
companys cash incentive plan for the third and fourth quarters and for the annual
period in 2008 because of foreign currency transaction losses resulting from significant
volatility in the currency markets related to the global financial and economic crisis.
Although incentive bonuses were not earned as a result of these foreign currency losses,
the Compensation Committee approved the payment of discretionary bonuses based on third
quarter and annual performance to executives based on various performance factors
including the following:
|
|
|
Earnings
per share increased approximately 18% from 2007 even after taking into consideration the
large foreign currency losses in 2008 and excluding the restructuring charges in 2007; |
|
|
|
Operating
margin improved approximately 38% from 2007 even after excluding restructuring charges
from 2007 results; |
|
|
|
Management
managed to grow revenue in difficult economic conditions by 8% in 2008; and |
|
|
|
Significant
improvement in general and administrative expenses as well as sales incentives and
expenses. |
The
Compensation Committee also felt it was appropriate to grant discretionary bonuses as the
performance targets would have been achieved except for the unusual currency swings. Based
on historical experience, we had capped the impact of swings in the yen under the
performance targets. However, we had not capped the impact of other currencies as they
historically had generally been an offsetting factor against the yen when they moved in
the same direction. The significant weakening of these currencies while the yen
strengthened resulted in an impact that had not been anticipated at the time the
performance targets were established.
-18-
The
amount of the bonus for each executive was equal to the amount of bonuses the executive
would have earned in the third quarter and annual incentive periods had the foreign
currency transaction losses been excluded from operating results. No discretionary bonus
was awarded based on fourth quarter performance. A portion of the bonuses was paid in
shares of the companys stock. The amount of the bonus for each of the named
executive officers was as follows:
|
|
|
|
Truman Hunt |
|
|
|
$408,552 |
|
Blake Roney | | |
| $245,132 |
|
Joe Chang | | |
| $163,421 |
|
Ritch Wood | | |
| $114,395 |
|
Dan Chard | | |
| $114,395 |
|
We
have also historically made a year-end holiday gift payment to all corporate employees,
including the named executive officers, in the form of a gift certificate or similar
merchant credit arrangement or cash in an amount equal to a percentage of each
employees base salary (typically approximately two-weeks salary). The amount
of the year-end holiday gift we paid to the named executive officers is included in the
bonus column of the Summary Compensation Table and represents the same percentage of pay
as was provided to other corporate employees.
We
have occasionally agreed to pay retention or guaranteed bonuses when we have determined it
was necessary to attract or retain a key executive. We believe a retention bonus paid at
the end of an agreed upon employment period can provide a greater incentive to remain
employed than an equivalent increase in salary because the salary is paid pro rata
throughout the period and the retention bonus is only paid if the employee remains
employed at the end of the employment period. At the end of 2008, a retention bonus of
$300,000 became payable to Mr. Chang pursuant to the terms of Mr. Changs
compensation package that was negotiated in 2006 in light of other opportunities available
to Mr. Chang. Under the terms of such arrangement, Mr. Chang received retention
bonuses at the end of 2006, 2007 and 2008, and is entitled to receive a retention bonus at
the end of 2009 in the amount of $400,000 if he is still employed by us at such time. The
retention bonus was back-end weighted so that the majority of the bonus will be received
at the end of the later years. We felt that this retention bonus was an appropriate
mechanism to incentivize Mr. Chang to remain with our company based on Mr. Changs
contributions in our product development area, his experience in the industry, his value
as a spokesperson to our global distributor force, and the other opportunities available
to him.
Annual Equity Grants
Aligning
the interests of our executive officers with those of our stockholders in order to
encourage our executive officers to manage like a company owner is an important objective
of our compensation program. In order to accomplish this objective, we have tied a
significant portion of the total compensation of executive officers to our long-term stock
performance through the grant of equity awards and the adoption of our Stock Ownership
Guidelines. We also believe that equity compensation helps motivate executive officers to
drive earnings growth because they will be rewarded with increased equity value and
assists in the retention of executives who may have significant value tied up in unvested
equity awards.
-19-
As
indicated above, we make semi-annual grants of equity awards as well as a limited number
of special equity grants. We periodically review the level of our semi-annual equity
awards and make adjustments to those levels when we determine it is appropriate. We do not
use a fixed formula or criteria in determining whether to adjust the level of semi-annual
awards, but make a subjective evaluation that may take into consideration a variety of
factors including:
|
|
|
the
practices of other companies; |
|
|
|
the
degree of responsibility for overall corporate performance; |
|
|
|
overall
compensation levels; |
|
|
|
changes
in positions and/or responsibilities; |
|
|
|
individual
and corporate performance; |
|
|
|
potential
dilution of our overall equity grants; |
|
|
|
accumulated
realized and unrealized value of equity awards; |
|
|
|
the
associated expense of such awards; and |
|
|
|
recommendations
of the Chairman of the Board and Chief Executive Officer with respect to the other
executive officers. |
We
believe that our Chief Executive Officer should have a significant portion of his total
compensation in the form of equity to align his management of the company with the
interests of the stockholders. We had previously established Mr. Hunts semi-annual
stock option grant level at 100,000 options. In 2006, Mr. Hunt unilaterally reduced his
semi-annual stock option grant level to 25,000 stock options. In connection with the
review of Mr. Hunts overall compensation, Mr. Hunts semi-annual stock grant
was increased in May 2008 to 50,000 for the August grant and to 92,500 options for
semi-annual grants thereafter. In making the decision, we reviewed Mr. Hunts annual
compensation, his average equity grants over the prior three years, the accumulated value
of his equity awards, and his carried-ownership interest, as well as survey data related
to the equity compensation for the CEOs of our peer group. The decision to increase
Mr. Hunts semi-annual equity grant back to the approximate level in place prior to
Mr. Hunts unilateral decision to reduce his option grant was based on Mr.
Hunts and our corporate performance, as evidenced by the significant progress that
had been made to align the organization and improve operating efficiencies. The fact that
Mr. Hunts equity grants were significantly below the 50th percentile of
our peer group was also taken into consideration.
Because
we believe our other named executive officers should manage the business as a team, we
have typically structured our equity incentives to be similar in size and composition. We
have generally provided a similar level of equity awards in our semi-annual grants to each
of the members of our executive management committee, which is the key management group
responsible for our strategy and operations. While we generally have not given significant
consideration to the value of existing equity awards as we want to encourage stock
ownership and the retention of equity awards for long periods, we do review and consider
the value of existing awards (inclusive of sales proceeds over the previous three years)
of our executive officers in connection with our review of equity compensation practices.
The company reviewed the equity grants extensively at the end of 2007 and elected to keep
the number of semi-annual stock option grants the same in 2008 as they had been in 2007.
In 2008, the semi-annual grant levels for stock options remained as follows:
-20-
Name |
|
|
|
Semi-Annual Number of Options |
|
Ritch Wood | | |
| 22,500 |
|
Joe Chang | | |
| 17,500 |
|
Dan Chard | | |
| 17,500 |
|
We
have historically not made equity grants to Mr. Roney, one of the founders and the
Executive Chairman of the company. In 2009, we elected to increase Mr. Chards
semi-annual option grant from 17,500 to 22,500, the same level as Mr. Wood, based on his
responsibilities over all of the company markets and his performance in helping the
company to achieve its 2008 results as previously discussed. We provide the named
executive officers with the right to elect to take 30% of their semi-annual grants in the
form of restricted stock units (adjusted at a 3.5 to 1 ratio). Mr. Chang made this
election for his August 2008 grant.
Special Performance
Option Grants
In
2007, management was successful in renewing revenue growth, with revenue growing
approximately 4% compared to 2006 despite challenges in China and Japan. However, because
we were not achieving the desired level of earnings growth, additional steps were taken in
the fourth quarter of 2007 to improve earnings. One of these steps was to provide an
attractive special incentive to a key group of 22 officers and key managers to align their
efforts to significantly improve earnings per share and motivate them to improve earnings.
To accomplish this, we determined that the best approach would be to provide these key
managers with performance stock options that would only vest if meaningful earnings per
share targets were achieved. As a result, we made a special grant of performance stock
options to these key employees, 50% of which would vest when earnings per share reach
$1.50 for any 12 month period (determined on a quarterly basis) and 50% of which would
vest when earnings per share reaches $2.00 per share. If these targets are not achieved
based on performance through December 2012, the options are forfeited. For reference, our
earnings per share in 2007 were $0.67 (inclusive of $0.17 per share of restructuring
charges (net of taxes)). We believe this incentive was a positive motivator to management
members to drive earnings per share improvement.
In
determining the appropriate number of shares to grant, the Compensation Committee engaged
the services of its compensation consultant to review the proposal, provide a
comprehensive review of total direct annual compensation (total cash and equity
compensation), and advise the Compensation Committee. In considering the grant, we
reviewed and considered various factors including:
|
|
|
the
average equity grant over the last three years compared to our peers; |
|
|
|
the
value of the total holdings of the named executive officers; |
|
|
|
the
carried-ownership interest (number of shares and options owned by the executive as a
percentage of the outstanding shares) of the named executive officers; |
|
|
|
the
potential financial statement expenses associated with such a grant; |
|
|
|
the
potential dilution of such grants with respect to the outstanding shares; and |
|
|
|
the
semi-annual equity grants in 2007. |
For
purposes of this analysis, we weighted one performance option equal to half of a
time-vested option, based on our valuation of the options. We also spread the grant over
the five-year performance period for purposes of analyzing the grant and making
comparisons to the equity grant practices of our peer group of companies and industry
surveys. Officers with similar levels of responsibility were generally granted similar
numbers of performance options with various exceptions. Although the grants would increase
our overall equity expense and usage rate above historical levels, the Compensation
Committee determined the grant would be appropriate based on various factors including the
fact that the options would not vest unless significant earnings per share growth occurred
and the grant would help unify management in achieving improved earnings growth.
-21-
Based
on this analysis, we granted 120,000 performance options to each of Mssrs. Wood, Chang and
Chard in December 2007. We granted 350,000 performance options to Mr. Hunt in May 2008.
Mr. Hunt received his options at a later date because the Compensation Committee elected
to address Mr. Hunts performance option grant at the same time they addressed other
components of his compensation. Because the approved grants will only become exercisable
if earnings per share grow significantly, the Compensation Committee was willing to
consider grants that would result in some officers having equity grants levels at the 75th
percentile or higher compared to our peer companies.
2009 Special Option Grants
As
the global economic downturn drove equity valuations down dramatically, we saw a
significant decline in our stock price despite the fact that our company performed
strongly in 2008 as highlighted above in the discussion regarding the granting of
discretionary bonuses. As a result of this decline in overall equity valuations during the
year, most of our outstanding stock options were out-of-the-money at the end of the year
despite our solid performance. This created a concern that the motivational and retentive
benefits of prior grants had been significantly diminished because many of these options
were so far out-of-the-money. As a result, the Compensation Committee reviewed, with input
from its compensation consultant, our equity compensation for our management team and key
employees to determine a way to address these concerns. Following this review, we elected
to:
|
|
|
make
a special grant of options to a group of approximately 80 individuals including our
executive management team and directors in addition to the regular semi-annual and annual
option grants; |
|
|
|
accelerate
the semi-annual grant of options that would normally occur in August 2009 by granting
them in February 2009 with the February semi-annual grant; and |
|
|
|
provide
key employees and directors who had received restricted stock units with the right to
receive options this year in lieu of restricted stock units at the conversion rate of 3.5
options for every restricted stock unit. |
Because
of the decline in our stock value, the expense associated with granting equity awards had
also decreased. As a result, this provided us with an opportunity to make a special equity
grant this year in addition to the regular semi-annual equity grants. The special grant
was designed to result in a total grant of options in 2009 (regular semi-annual grants
plus the special grant in February) that would not increase materially the total equity
compensation expense in 2009 compared to what was expensed in prior years related to
equity grants. We believe this special option grant will be an attractive equity incentive
for executives and key employees that is both motivational and a retention incentive, but
does not increase overall equity compensation expense. The numbers of options granted to
the named executive officers, other than Mr. Roney, were generally determined to be an
amount that would not materially increase their equity compensation (other than that
resulting from an increase in the regular semi-annual grant amount previously discussed).
Although we normally do not do so, we elected to make a grant of options to Mr. Roney as
an added performance incentive for Mr. Roney. The numbers of options approved for this
special option grant in February 2009 to named executive officers were as follows:
-22-
Name | | | |
Special Option Grant | | |
Combined Semi-Annual Grant | | |
Total | |
Truman Hunt |
|
|
|
65,000 |
|
|
185,000 |
|
|
250,000 |
|
Blake Roney | | |
| 50,000 |
|
| 0 |
|
| 50,000 |
|
Ritch Wood | | |
| 40,000 |
|
| 45,000 |
|
| 85,000 |
|
Joe Chang(1) | | |
| 40,000 |
|
| 35,000 |
|
| 75,000 |
|
Dan Chard | | |
| 40,000 |
|
| 45,000 |
|
| 85,000 |
|
(1) |
|
Mr. Chang elected to take 30% of his combined semi-annual grant, set forth
above, in the form of restricted stock units (adjusted at a 3.5 to 1 ratio). |
Timing of Equity Grants
We
make semi-annual equity grants to our executive officers and key employees. These grants
generally take place at or near the end of February and August each year. Generally, the
grant date is the date that the members of the Compensation Committee are able to meet at
or near the end of February and August. The exercise price of the options is set at the
closing price of our stock on the date of grant. We typically use two semi-annual grants
for stock options rather than one annual grant in order to minimize the impact of stock
volatility on the exercise price during the year. For consistency purposes, we also make
grants of restricted stock units on these dates so that the Compensation Committee is
reviewing the entire equity grant at the same time. The Compensation Committee generally
meets on the proposed grant date where they review the award list and approve the grant.
We also grant a limited number of equity awards at times other than on the general
semi-annual grant dates, including the special equity grants discussed above. These awards
are generally related to new hires, promotions, changes in job responsibilities, and new
compensation packages.
Dividend Equivalent
We
have been providing Mr. Hunt with a payment equal to the dividend that would be paid
on 250,000 shares. In May 2008, we elected to terminate this cash payment in connection
with an increase in Mr. Hunts base salary.
Equity Retention
Guidelines
In
January 2005, we established equity retention guidelines for our executive officers to
motivate our executive officers to consider the long-term consequences of business
strategies and to provide for a level of long-term performance risk with respect to our
compensation programs. These guidelines provide that executive officers and directors must
retain 50% to 75% of the net shares (after payment of the exercise price and related
taxes) with respect to any equity award unless the individual holds a number of shares
equal to designated levels set forth in the guidelines. The designated levels for
executive officers are phased in over a five-year period. Outstanding options and
restricted stock units are not counted in determining whether a director or officer holds
shares equal to or greater than the designated level. At the end of the five-year phase-in
period, the designated ownership levels are set at 100,000 shares for our Chief Executive
Officer, and 20,000 shares for the members of our executive management committee. With the
exception of Mr. Roney, Mr. Hunt and Mr. Chang, the named executive officers are subject
to the retention requirement because their ownership levels are below the applicable
designated levels.
-23-
Retirement and Other
Post-Termination Benefits
Our
executive officers do not participate in any pension or defined benefit plan. We believe
it is important for retention purposes to provide executives with a meaningful opportunity
to accumulate savings for their retirement. To accomplish this we maintain both a
tax-qualified 401(k) plan and a non-qualified deferred compensation plan. Under our
non-qualified deferred compensation plan, our highly compensated employees (as defined by
the Internal Revenue Code) may elect to defer up to 80% of his or her base salary and up
to 100% of his or her bonus (minus applicable withholding requirements) that otherwise
would be payable in a calendar year. We do not make any matching contributions, but we do
make discretionary contributions to the plan for select employees ranging from 3% of
salary to 10% of salary. In order to provide an incentive for our key employees to remain
with us for the long-term, the discretionary contributions did not vest in full until the
participant has 20 years of service or reaches the age of 60. Effective January 1, 2009,
we amended the vesting provisions to provide that the company contributions will now vest
50% at 10 years of service and 5% each year thereafter. The vested balance will not be
paid out, however, if the participant competes with the company during the one-year period
following termination of employment; provided that this restriction terminates after the
participant has reached 20 years of service or age 60. Amounts deferred are credited to
accounts that track investment accounts offered through variable insurance products and
earnings are tied to the earnings on these investment accounts. Because earnings are not
above market, the earnings on the deferred compensation plan are not included
in the Summary Compensation Table, although they are included in the Aggregate
Earnings in Last Fiscal Year column of the Nonqualified Deferred Compensation
2008 table.
The
employment agreement entered into by Mr. Hunt when he was appointed President and Chief
Executive Officer in 2003 contains certain severance and change of control benefits. These
benefits provide for acceleration of his equity awards immediately prior to the
announcement of a change of control and lump sum severance benefit in the event his
employment is terminated within two years following a change of control. We believe these
benefits help to ensure that Mr. Hunt will remain employed and actively engaged in
the event of a potential change of control. We believe these benefits are reasonable. We
have also agreed to certain severance payments for Mr. Hunt if he is terminated
without cause, which we believe are reasonable and necessary in order to attract and
retain a qualified Chief Executive Officer. Mr. Chang is also entitled to have his
stock options vest in the event of a change of control and is also entitled to certain
severance benefits. We also have a severance or employment arrangement with
Mr. Chard. The benefits were negotiated in order to retain the services of these
employees. These change of control and severance benefits are described and quantified
below under the section entitled Employment Agreements and in the table below
entitled Potential Payments Upon Termination or Change of Control. We are in
the process of reviewing our change in control and severance benefits.
Our
current equity awards for all key employees also provide for accelerated vesting upon a
change of control if an employee is terminated within two-years following such change of
control. We believe this double trigger acceleration is a reasonable way to protect
employees who may be terminated following a change of control. It also assists Nu Skin
with retaining their services in the event of a potential change of control and
thereafter. We believe such arrangements are in the best interests of the company and our
stockholders if they are reasonable in amount and scope, because they can help to retain
key employees during a change of control process.
Perquisites and Other
Personal Benefits
We
also provide our executive officers and other key employees with various other benefits.
These consist of, among other things, payments for term life insurance, use of
recreational equipment and properties, sporting event tickets, security and free company
product. We generally pay the income taxes associated with the use of these perquisites.
These benefits represent a very small portion of the executive officers overall
compensation. We review these benefits on a regular basis and believe these benefits are
reasonable in relation to the executive compensation practices of other companies and make
working for our company more attractive. The amount of these benefits is included in the
All Other Compensation Table that follows the Summary Compensation Table.
-24-
Tax Limitations on
Deductibility
We
have taken into consideration the limitation on deductibility for United States income tax
purposes of compensation in excess of $1 million paid to our highest paid executive
officers by structuring a significant portion of our compensation as performance based.
Our current cash incentive plan and equity incentive plan have been approved by our
shareholders, and the awards under these plans can qualify as
performance-based for purposes of the deductibility limitations. While we try
to structure compensation so that it will be deductible for income tax purposes, we also
exercise judgment and may authorize compensation payments that do not comply with the
exemptions in Section 162(m) when we believe that such payments are appropriate and
in the best interests of our company and our stockholders. For example, we have approved
certain discretionary and retention bonuses as described above and considered the impact
of Section 162(m) in our deliberations with respect to such awards.
COMPENSATION COMMITTEE
REPORT
We
have reviewed and discussed with management the Compensation Discussion and Analysis to be
included in this proxy statement. Based on the reviews and discussions referred to above,
we recommend to the Board of Directors that the Compensation Discussion and Analysis
referred to above be included in this proxy statement.
|
|
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
E.J. "Jake" Garn, Chairman
Andrew Lipman
Patricia Negrón
David Ussery
|
-25-
Summary Compensation
Table
The
following table summarizes the total compensation paid or earned by each of the named
executive officers for the fiscal years ended December 31, 2006,
December 31, 2007 and December 31, 2008.
Name and Principal
Position |
Year |
Salary ($)(1) |
Bonus ($)(2) |
Stock Awards ($)(3) |
Option Awards ($)(3) |
Non-Equity Incentive Plan Compensation ($)(4) |
All Other Compensation ($)(5) |
Total ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truman Hunt |
|
2008 |
|
673,077 |
|
437,398 |
|
|
|
503,694 |
|
201,137 |
|
118,715 |
|
1,934,021 |
|
President and Chief |
|
2007 |
|
550,000 |
|
21,154 |
|
27,332 |
|
341,098 |
|
201,983 |
|
201,270 |
|
1,342,837 |
|
Executive Officer |
|
2006 |
|
578,750 |
|
22,654 |
|
768,750 |
|
596,366 |
|
150,751 |
|
188,958 |
|
2,306,229 |
|
| |
Ritch Wood | |
2008 | |
350,000 |
|
127,857 |
|
|
|
480,234 |
|
64,780 |
|
76,217 |
|
1,099,088 |
|
Vice President and | |
2007 | |
350,000 |
|
13,462 |
|
|
|
440,026 |
|
77,183 |
|
83,199 |
|
963,870 |
|
Chief Financial | |
2006 | |
350,000 |
|
13,462 |
|
|
|
430,941 |
|
60,456 |
|
84,021 |
|
938,880 |
|
Officer | |
| |
Blake Roney (6) | |
2008 | |
750,000 |
|
273,978 |
|
|
|
|
|
138,814 |
|
53,176 |
|
1,215,968 |
|
Chairman of the Board | |
2007 | |
750,000 |
|
28,846 |
|
|
|
|
|
165,277 |
|
33,028 |
|
977,151 |
|
| |
Joe Chang | |
2008 | |
500,000 |
|
482,652 |
|
252,464 |
|
304,269 |
|
92,543 |
|
79,746 |
|
1,711,674 |
|
Chief Scientific | |
2007 | |
500,000 |
|
220,231 |
|
347,573 |
|
256,291 |
|
110,218 |
|
68,360 |
|
1,502,673 |
|
Officer and Executive | |
2006 | |
474,825 |
|
219,231 |
|
291,783 |
|
232,425 |
|
86,367 |
|
69,195 |
|
1,373,826 |
|
Vice President | |
Product Development | |
| |
Dan Chard | |
2008 | |
346,154 |
|
128,857 |
|
6,259 |
|
357,626 |
|
64,780 |
|
85,557 |
|
989,233 |
|
Executive Vice | |
2007 | |
322,115 |
|
12,500 |
|
5,284 |
|
310,655 |
|
71,676 |
|
71,308 |
|
793,538 |
|
President, Distributor | |
2006 | |
289,324 |
|
11,538 |
|
|
|
233,448 |
|
155,300 |
|
848,805 |
|
1,538,415 |
|
Success | |
(1) |
|
Mr. Hunt and Mr. Chang deferred a portion of their salaries under our
non-qualified deferred compensation plan, which is included in the Nonqualified
Deferred Compensation Table. Each of the named executive officers, except Mr.
Roney, also contributed a portion of his salary to our 401(k) retirement
savings plan. |
(2) |
|
The amounts reported in this column include gift payments that we have
historically made to all corporate employees for 10, 15 and 20 years of service,
and as year-end holiday gifts in the form of a gift certificate or similar
merchant credit arrangement, or cash in an amount equal to a percentage of each
employees base salary (approximately two-weeks salary). The amounts
reported in this column also include discretionary bonuses based on the
companys performance during the three months ended September 30, 2008 and
the year ended December 31, 2008, which were paid 75 percent in cash and 25
percent in shares of our Class A Common Stock. The total discretionary bonus
amounts received by the named executive officers were as follows: Mr. Hunt,
$408,552; Mssrs. Wood and Chard, $114,395; Mr. Roney, $245,132; and Mr. Chang,
$163,421. These amounts include discretionary bonus stock granted on February
20, 2009, with a grant date closing price of $10.41 per share, with the named
executive officers receiving the following number of shares: Mr. Hunt, 9,817:
Mssrs. Wood and Chard, 2,749; Mr. Roney, 5,890; and Mr. Chang, 3,927. In
connection with this discretionary bonus stock grant, Mssrs. Hunt and Roney were
granted the right to surrender a portion of the shares to satisfy related tax
withholding obligations. The amounts reported in this column for Mr. Chang
include retention bonuses paid pursuant to Mr. Changs employment contract
for his continued service through December 31of 2006, 2007 and 2008. See the
Compensation Discussion and AnalysisOther Bonus for additional
information regarding Mr. Changs retention bonus. |
-26-
(3) |
|
These columns represent the dollar amount recognized for financial statement
reporting purposes for the fiscal years ended December 31, 2006, 2007 and 2008,
in accordance with SFAS 123(R) of equity awards granted to the named
executive officers, and thus may include amounts from awards granted in and
prior to 2006, 2007 and 2008. Pursuant to the SEC rules, the amounts shown
exclude the impact of estimated forfeitures related to service-based vesting
conditions. Assumptions used in the calculation of these amounts are included in
the notes to our financial statements in our annual reports on Form 10-K, as
filed with the SEC. These amounts reflect our accounting expense for these
awards, and do not correspond to the actual value that will be realized by the
named executive officers upon vesting or exercise of these awards. See the
Grants of Plan-Based Awards Table for information regarding stock
awards made in 2008. |
(4) |
|
The amounts reported in this column are cash awards to the named executive
officers made pursuant to our 2006 Senior Executive Incentive Plan. See the
Compensation Discussion and AnalysisCash Incentive Bonuses for
information regarding these awards. Mr. Hunt and Mr. Chang deferred a
portion of their incentive bonuses under our non-qualified deferred compensation
plan, which is included in the Nonqualified Deferred Compensation
Table. |
(5) |
|
See the All Other Compensation Table below for additional
information. |
(6) |
|
Mr. Roney was not a named executive officer for 2006. As a result, only 2007 and
2008 compensation information for Mr. Roney is included in the Summary
Compensation Table. |
-27-
All Other Compensation
Table 2008
The
following table describes the components of the All Other Compensation column for 2008 in
the Summary Compensation Table.
Name |
Company Contributions
to Deferred
Compensation Plan ($) |
Tax Payments ($)(1) |
Term Life Insurance
Premiums paid by
Company ($)(2) |
Company Contributions
to 401(k) Retirement
Savings Plan ($) |
Perquisites and
Other Personal
Benefits ($)(2) |
Other ($)(4) |
Total ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truman Hunt |
|
70,000 |
|
5,783 |
|
|
|
6,900 |
|
8,445 |
|
27,587 |
|
118,715 |
|
Ritch Wood | |
35,000 |
|
13,648 |
|
300 |
|
6,900 |
|
20,369 |
|
|
|
76,217 |
|
Blake Roney | |
|
|
18,259 |
|
1,680 |
|
|
|
33,237 |
|
|
|
53,176 |
|
Joe Chang | |
50,000 |
|
8,245 |
|
3,270 |
|
6,900 |
|
11,331 |
|
|
|
79,746 |
|
Dan Chard | |
35,000 |
|
16,048 |
|
460 |
|
6,900 |
|
25,149 |
|
2,000 |
|
85,557 |
|
(1) |
|
This column reports amounts reimbursed by us for the payment of taxes with
respect to perquisites and other personal benefits provided to the named
executive officers. |
(2) |
|
This column reports premiums paid to obtain term life insurance policies with
coverage of $500,000 for Mssrs. Wood, Chang and Chard, and $1,000,000 for
Mr. Roney. |
(3) |
|
This column reports our incremental cost for perquisites and personal benefits
provided to the named executive officers. In 2008, these benefits included,
among other things, the personal use of company-provided vehicles, cabins,
sporting tickets, company product, travel benefits, security and prizes at
company parties. |
(4) |
|
The amount reported in this column for Mr. Hunt includes, pursuant to his
employment terms, a dividend equivalent payment equal to 250,000 times the
per share dividend declared for the first quarter of 2008. This dividend
equivalent was terminated in May 2008. |
-28-
Grants of Plan-Based
Awards 2008
The
following table provides information about equity and non-equity awards granted to the
named executive officers in 2008.
|
|
Estimated Future Payouts under non-Equity Incentive Plan Awards | |
Estimated Future Payouts under Equity Incentive Plan Awards | |
All Other Stock Awards: Number of Shares of Stock or Units (#) |
All Other Option Awards: Number of Securities Underlying Options (#)(3) |
Exercise or Base Price of Option Awards ($)(4) |
Grant Date Fair Value of Stock and Option Awards ($)(5) |
Name |
Grant Date |
Threshold ($)(1) |
Target ($)(1) |
Max ($)(1) |
Threshold ($) |
Target ($)(2) |
Max ($) |
|
|
|
|
|
|
|
|
|
Truman Hunt |
|
02/28/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
16.89 |
|
119,250 |
|
|
|
5/12/2008 |
|
|
|
|
|
|
|
|
|
175,000 |
|
|
|
|
|
|
|
17.14 |
|
603,750 |
|
|
|
5/12/2008 |
|
|
|
|
|
|
|
|
|
175,000 |
|
|
|
|
|
|
|
17.14 |
|
952,000 |
|
|
|
8/11/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
17.03 |
|
252,000 |
|
|
|
N/A |
|
181,250 |
|
725,000 |
|
3,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ritch Wood |
|
02/28/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,500 |
|
16.89 |
|
107,325 |
|
|
|
08/11/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,500 |
|
17.03 |
|
113,400 |
|
|
|
N/A |
|
52,500 |
|
210,000 |
|
3,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blake Roney |
|
N/A |
|
112,500 |
|
450,000 |
|
3,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joe Chang |
|
02/28/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,500 |
|
16.89 |
|
83,475 |
|
|
|
08/11/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,250 |
|
17.03 |
|
61,740 |
|
|
|
08/11/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
|
|
23,910 |
|
|
|
N/A |
|
75,000 |
|
300,000 |
|
3,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dan Chard |
|
02/28/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,500 |
|
16.89 |
|
83,475 |
|
|
|
08/11/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,500 |
|
17.03 |
|
88,200 |
|
|
|
N/A |
|
52,500 |
|
210,000 |
|
3,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts reported in these columns reflect potential payouts for 2008 under
our incentive plan if the respective levels of performance were achieved for all
quarters and for the year. The amounts reported in the Threshold column reflect
the potential payout if any company performance metric was at the minimum level
required to receive a bonus. The amounts reported in the Target column reflect
the potential payout if all company performance metrics were at target levels.
In the event that stretch level targets are exceeded, the bonus payable
increases in proportion to the extent to which the targets are exceeded, but
cannot exceed $3 million. If all stretch level targets had been met during 2008,
the named executive officers would have been paid the following under this plan:
Mr. Hunt, $1,450,000; Mr. Wood, $420,000; Mr. Roney, $900,000; Mr. Chang,
$600,000; and Mr. Chard, $420,000. See the Summary Compensation
Table above for awards that were actually paid to the named executive
officers under the incentive plan with respect to the year 2008. |
(2) |
|
We granted performance stock options to Mr. Hunt in May 2008. For additional
information relating to our performance stock options, see the
Compensation Discussion and AnalysisSpecial Performance Option
Grants. |
-29-
(3) |
|
The awards reported in this column are stock options granted to the executive
officers under our 2006 Stock Incentive Plan. These stock option awards
vest and become exercisable in four equal annual installments beginning one year
from the date of the respective grant. |
(4) |
|
This column shows the exercise price for the stock option awards granted, which
in each case is the closing price of our stock on the date of the respective
grant. |
(5) |
|
This column shows the full grant date fair value of the restricted stock unit
awards and the stock option awards under SFAS 123(R), which is
generally the amount that we would expense in our financial statements over the
awards vesting period. For information on the valuation assumptions used
in calculating these amounts, refer to note 11 to our financial statements
in the Form 10-K filed for the fiscal year ended
December 31, 2008. |
Narrative to Summary
Compensation Table and Grants of Plan-Based Awards Table
Employment Agreements
We
have employment agreements or offer letters with Truman Hunt, Joe Chang and Dan Chard. The
following summarizes the material terms of these agreements, as amended, that remain in
effect. For additional discussion on these employment arrangements, see the
Compensation Discussion and Analysis section above.
Truman Hunt
|
|
|
$665,000
annual base salary. Effective April 2006, however, Mr. Hunt voluntarily elected to
reduce his annual salary to its previous level of $550,000. Mr. Hunt's
salary was increased to $750,000 in May 2008. |
|
|
|
Under
the original terms of Mr. Hunts employment letter, he was entitled to participation
in our standard stock incentive plan at no less than 50,000 stock options per year.
The Compensation Committee had approved an increase to 200,000 options per year in
2005, however, Mr. Hunt voluntarily elected to remain at the 50,000 level. Mr.
Hunts semi-annual option grant increased to 50,000 options for the August 2008
grant and increased to 92,500 (185,000 per year) in 2009. |
|
|
|
Mr.
Hunt received a special grant of 350,000 performance stock options in 2008 with similar
terms to those described above in Compensation Discussion and Analysis Special
Performance Option Grants. |
|
|
|
Senior
executive cash incentive plan (currently at a bonus target of 100% of base salary). |
|
|
|
Dividend
equivalent payments equal to 250,000 times the per share dividend declared, which
Mr. Hunt received in 2007, were paid through the first quarter of 2008 and terminated in
May 2008. |
|
|
|
All
equity awards vest upon a change of control. If within 24 months of a change of
control Mr. Hunt is involuntarily terminated without cause, he is entitled to a
severance payment equal to three times his annual compensation then in effect (current
base salary plus current cash bonus target of 100% of base), health insurance
benefits for 36 months, and excise tax protection. |
|
|
|
If
Mr. Hunt is terminated by us without cause, he is entitled to severance payment
equal to two times his annual compensation (current base salary plus current cash bonus
target of 100% of base) and excise tax protection. |
-30-
|
|
|
Mr. Hunt
is subject to our key employee covenants including confidentiality, assignment of work
product, non-competition and non-solicitation. |
Joe Chang
|
|
|
$500,000
annual base salary. |
|
|
|
Annual
retention bonus for continued employment at the end of each year in the amount of $200,000
for years 2006 and 2007; $300,000 for 2008; and $400,000 for 2009. |
|
|
|
Initial
contingent stock award of 58,928 shares that vest in four equal annual installments,
the first of which vested in November 2006. |
|
|
|
Participation
in our standard stock incentive plan at no less than 35,000 stock options per year. |
|
|
|
Senior
executive cash incentive plan (currently at a bonus target of 60% of base salary). |
|
|
|
All
stock options vest upon a change of control. |
|
|
|
If
Mr. Chang is terminated without cause prior to the end of 2009, Mr. Chang is
entitled to (i) his then applicable annual base salary for twelve months, (ii)
any retention bonus and cash incentive bonus that would have been payable during such 12-month
period, and (iii) vesting of any stock incentive awards that would have been vested
during such 12-month period. |
|
|
|
If
Mr. Chang remains employed until age 60, upon termination he will be entitled to a
four-year consulting contract with us for $250,000 per year. |
|
|
|
Our
obligations under this agreement are contingent upon various restrictive covenants,
including, among others, non-competition, non-solicitation, non-endorsement and
confidentiality. |
Dan Chard
|
|
|
$300,000
annual base salary, increased by $25,000 in February 2007 and by another $25,000 in
February 2008. |
|
|
|
Initial
stock option award of 100,000 shares, with 50% vesting in four equal annual installments,
the first of which vested in February 2007, and 50% vesting in February 2011. He is also
entitled to participation in our stock incentive plan at no less than 35,000 stock
options per year. All equity awards vest on a change of control. |
|
|
|
Senior
executive cash incentive plan (currently at a bonus target of 60% of base salary). |
|
|
|
For
termination without cause, Mr. Chard is entitled to severance equal to 1.5 times his then
current base salary. |
|
|
|
Mr.
Chard is subject to our key employee covenants including confidentiality, assignment of
work product, non-competition and non-solicitation. |
-31-
Outstanding Equity
Awards at Fiscal Year-End - 2008
The
following table provides information on the holdings of equity awards by the named
executive officers as of December 31, 2008. Mr. Roney is not included in this
table since he did not own any equity awards as of December 31, 2008.
|
|
Option Awards | |
Stock Awards |
Name |
Grant Date |
Number of Securities Underlying Unexercised Options Exercisable (#) |
Number of Securities Underlying Unexercised Options Unexercisable (#)(1) |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)(2) |
Option Exercise Price ($) |
Option Expiration Date |
Number of Shares or Units of Stock That Have Not Vested (#)(3) |
Market Value of Shares or Units of Stock That Have Not Vested ($)(4) |
|
|
|
|
|
|
|
Truman Hunt |
|
08/31/1999 |
|
40,000 |
|
|
|
|
|
12.94 |
|
08/31/2009 |
|
|
|
|
|
|
|
08/31/2000 |
|
35,000 |
|
|
|
|
|
6.56 |
|
08/31/2010 |
|
|
|
|
|
|
02/28/2001 |
|
17,500 |
|
|
|
|
|
8.20 |
|
02/28/2011 |
|
|
|
|
|
|
|
08/31/2001 |
|
17,500 |
|
|
|
|
|
6.85 |
|
08/31/2011 |
|
|
|
|
|
|
|
03/01/2002 |
|
17,500 |
|
|
|
|
|
8.99 |
|
03/01/2012 |
|
|
|
|
|
|
|
09/03/2002 |
|
17,500 |
|
|
|
|
|
12.00 |
|
09/03/2012 |
|
|
|
|
|
|
|
01/17/2003 |
|
250,000 |
|
|
|
|
|
12.45 |
|
12/31/2012 |
|
|
|
|
|
|
|
02/27/2004 |
|
25,000 |
|
|
|
|
|
19.15 |
|
02/27/2014 |
|
|
|
|
|
|
|
09/01/2004 |
|
25,000 |
|
|
|
|
|
26.13 |
|
09/01/2014 |
|
|
|
|
|
|
|
02/28/2005 |
|
18,750 |
|
6,250 |
|
|
|
22.33 |
|
02/28/2015 |
|
|
|
|
|
|
|
08/31/2005 |
|
18,750 |
|
6,250 |
|
|
|
21.34 |
|
08/31/2015 |
|
|
|
|
|
|
|
05/26/2006 |
|
12,500 |
|
12,500 |
|
|
|
17.58 |
|
02/28/2013 |
|
|
|
|
|
|
|
09/01/2006 |
|
12,500 |
|
12,500 |
|
|
|
17.25 |
|
09/01/2013 |
|
|
|
|
|
|
|
02/26/2007 |
|
6,250 |
|
18,750 |
|
|
|
17.75 |
|
02/26/2014 |
|
|
|
|
|
|
|
12/20/2007 |
|
6,250 |
|
18,750 |
|
|
|
16.50 |
|
12/20/2014 |
|
|
|
|
|
|
|
02/28/2008 |
|
|
|
25,000 |
|
|
|
16.89 |
|
02/28/2015 |
|
|
|
|
|
|
|
05/12/2008 |
|
|
|
|
|
175,000 |
|
17.14 |
|
05/12/2013 |
|
|
|
|
|
|
|
05/12/2008 |
|
|
|
|
|
175,000 |
|
17.14 |
|
05/12/2013 |
|
|
|
|
|
|
|
08/11/2008 |
|
|
|
50,000 |
|
|
|
17.03 |
|
08/11/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
Ritch Wood |
|
08/31/2000 |
|
1,250 |
|
|
|
|
|
6.56 |
|
08/31/2010 |
|
|
|
|
|
|
02/28/2001 |
|
625 |
|
|
|
|
|
8.20 |
|
02/28/2011 |
|
|
|
|
|
|
|
08/31/2001 |
|
2,000 |
|
|
|
|
|
6.85 |
|
08/31/2011 |
|
|
|
|
|
|
|
03/01/2002 |
|
2,250 |
|
|
|
|
|
8.99 |
|
03/01/2012 |
|
|
|
|
|
|
|
09/03/2002 |
|
5,625 |
|
|
|
|
|
12.00 |
|
09/03/2012 |
|
|
|
|
|
|
|
03/10/2003 |
|
13,125 |
|
|
|
|
|
9.04 |
|
03/10/2013 |
|
|
|
|
|
05/12/2003 |
|
37,500 |
|
|
|
|
|
10.31 |
|
05/12/2013 |
|
|
|
|
|
|
|
09/02/2003 |
|
17,500 |
|
|
|
|
|
11.50 |
|
09/02/2013 |
|
|
|
|
|
|
|
02/27/2004 |
|
17,500 |
|
|
|
|
|
19.15 |
|
02/27/2014 |
|
|
|
|
|
|
|
09/01/2004 |
|
17,500 |
|
|
|
|
|
26.13 |
|
09/01/2014 |
|
|
|
|
|
|
|
02/28/2005 |
|
13,125 |
|
4,375 |
|
|
|
22.33 |
|
02/28/2015 |
|
|
|
|
|
|
|
06/09/2005 |
|
37,500 |
|
12,500 |
|
|
|
23.28 |
|
06/09/2015 |
|
|
|
|
|
|
|
08/31/2005 |
|
13,125 |
|
4,375 |
|
|
|
21.34 |
|
08/31/2015 |
|
|
|
|
|
|
|
05/26/2006 |
|
11,250 |
|
11,250 |
|
|
|
17.58 |
|
02/28/2013 |
|
|
|
|
|
|
|
09/01/2006 |
|
11,250 |
|
11,250 |
|
|
|
17.25 |
|
09/01/2013 |
|
|
|
|
|
|
|
02/26/2007 |
|
5,625 |
|
16,875 |
|
|
|
17.75 |
|
02/26/2014 |
|
|
|
|
|
|
|
12/20/2007 |
|
|
|
|
|
60,000 |
|
16.50 |
|
12/20/2014 |
|
|
|
|
|
|
|
12/20/2007 |
|
|
|
|
|
60,000 |
|
16.50 |
|
12/20/2014 |
|
|
|
|
|
|
|
02/28/2008 |
|
|
|
22,500 |
|
|
|
16.89 |
|
02/28/2015 |
|
|
|
|
|
|
|
08/11/2008 |
|
|
|
22,500 |
|
|
|
17.03 |
|
08/11/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
-32-
|
|
Option Awards | |
Stock Awards |
Name |
Grant Date |
Number of Securities Underlying Unexercised Options Exercisable (#) |
Number of Securities Underlying Unexercised Options Unexercisable (#)(1) |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)(2) |
Option Exercise Price ($) |
Option Expiration Date |
Number of Shares or Units of Stock That Have Not Vested (#)(3) |
Market Value of Shares or Units of Stock That Have Not Vested ($)(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joe Chang |
|
02/28/2001 |
|
3,917 |
|
|
|
|
|
8.20 |
|
02/28/2011 |
|
|
|
|
|
|
|
04/19/2002 |
|
12,500 |
|
|
|
|
|
12.45 |
|
04/19/2012 |
|
|
|
|
|
|
|
04/19/2002 |
|
25,000 |
|
|
|
|
|
12.45 |
|
04/19/2012 |
|
|
|
|
|
|
|
04/19/2002 |
|
12,500 |
|
|
|
|
|
12.45 |
|
04/19/2012 |
|
|
|
|
|
|
|
09/03/2002 |
|
12,500 |
|
|
|
|
|
12.00 |
|
09/03/2012 |
|
|
|
|
|
|
|
03/10/2003 |
|
12,500 |
|
|
|
|
|
9.04 |
|
03/10/2013 |
|
|
|
|
|
09/02/2003 |
|
17,500 |
|
|
|
|
|
11.50 |
|
09/02/2013 |
|
|
|
|
|
|
|
02/27/2004 |
|
17,500 |
|
|
|
|
|
19.15 |
|
02/27/2014 |
|
|
|
|
|
|
|
09/01/2004 |
|
17,500 |
|
|
|
|
|
26.13 |
|
09/01/2014 |
|
|
|
|
|
|
|
02/28/2005 |
|
13,125 |
|
4,375 |
|
|
|
22.33 |
|
02/28/2015 |
|
|
|
|
|
|
|
08/31/2005 |
|
13,125 |
|
4,375 |
|
|
|
21.34 |
|
08/31/2015 |
|
|
|
|
|
|
|
04/17/2006 |
|
|
|
|
|
|
|
|
|
|
|
14,732 |
|
153,655 |
|
|
|
05/26/2006 |
|
8,750 |
|
8,750 |
|
|
|
17.58 |
|
02/28/2013 |
|
|
|
|
|
|
|
09/01/2006 |
|
8,750 |
|
8,750 |
|
|
|
17.25 |
|
09/01/2013 |
|
|
|
|
|
|
|
02/26/2007 |
|
4,375 |
|
13,125 |
|
|
|
17.75 |
|
02/26/2014 |
|
|
|
|
|
|
|
12/20/2007 |
|
|
|
|
|
60,000 |
|
16.50 |
|
12/20/2014 |
|
|
|
|
|
|
|
12/20/2007 |
|
|
|
|
|
60,000 |
|
16.50 |
|
12/20/2014 |
|
|
|
|
|
|
|
02/28/2008 |
|
|
|
17,500 |
|
|
|
16.89 |
|
02/28/2015 |
|
|
|
|
|
|
|
08/11/2008 |
|
|
|
12,250 |
|
|
|
17.03 |
|
08/11/2015 |
|
|
|
|
|
|
|
08/11/2008 |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
15,645 |
|
|
|
|
|
|
|
|
Dan Chard |
|
09/09/2002 |
|
1,500 |
|
|
|
|
|
12.45 |
|
09/09/2012 |
|
|
|
|
|
|
|
03/10/2003 |
|
1,500 |
|
|
|
|
|
9.04 |
|
03/10/2013 |
|
|
|
|
|
09/02/2003 |
|
3,750 |
|
|
|
|
|
11.50 |
|
09/02/2013 |
|
|
|
|
|
|
|
02/27/2004 |
|
5,000 |
|
|
|
|
|
19.15 |
|
02/27/2014 |
|
|
|
|
|
|
|
04/29/2004 |
|
25,000 |
|
|
|
|
|
23.87 |
|
04/29/2014 |
|
|
|
|
|
|
|
09/01/2004 |
|
10,000 |
|
|
|
|
|
26.13 |
|
09/01/2014 |
|
|
|
|
|
|
|
02/28/2005 |
|
7,500 |
|
2,500 |
|
|
|
22.33 |
|
02/28/2015 |
|
|
|
|
|
|
|
08/31/2005 |
|
7,500 |
|
2,500 |
|
|
|
21.34 |
|
08/31/2015 |
|
|
|
|
|
|
|
05/26/2006 |
|
8,750 |
|
8,750 |
|
|
|
17.58 |
|
02/28/2013 |
|
|
|
|
|
|
|
05/26/2006 |
|
25,000 |
|
75,000 |
|
|
|
17.58 |
|
05/26/2013 |
|
|
|
|
|
|
|
09/01/2006 |
|
8,750 |
|
8,750 |
|
|
|
17.25 |
|
09/01/2013 |
|
|
|
|
|
|
|
02/26/2007 |
|
3,125 |
|
9,375 |
|
|
|
17.75 |
|
02/26/2014 |
|
|
|
|
|
|
|
02/26/2007 |
|
|
|
|
|
|
|
|
|
|
|
1,125 |
|
11,734 |
|
|
|
12/20/2007 |
|
|
|
|
|
60,000 |
|
16.50 |
|
12/20/2014 |
|
|
|
|
|
|
|
12/20/2007 |
|
|
|
|
|
60,000 |
|
16.50 |
|
12/20/2014 |
|
|
|
|
|
|
|
02/28/2008 |
|
|
|
17,500 |
|
|
|
16.89 |
|
02/28/2015 |
|
|
|
|
|
|
|
08/11/2008 |
|
|
|
17,500 |
|
|
|
17.03 |
|
08/11/2015 |
|
|
|
|
|
|
(1) |
|
Option
Awards Vesting Schedule |
|
|
Grant |
|
|
Vesting Schedule |
|
|
5/26/2006 (Dan Chard 100,000) | | |
50% of the award vests in four equal annual installments beginning on February 28, 2007; the remaining 50% vests on February 28, 2011. | | |
| | |
05/26/2006 | | |
Vests in four equal annual installments beginning on
February 28, 2007. | | |
| | |
12/20/2007 | | |
Vests in four equal annual installments beginning on September 4, 2008. | | |
| | |
All Other Grants | | |
Vest in four equal annual installments beginning one year from the date of grant. | | |
-33-
|
(2) |
|
Performance
Vesting Options |
|
|
|
Vesting for
the options is performance based, with the options vesting in two installments if the
companys earnings per share equal or exceed the two established performance levels,
measured in terms of diluted earnings per share. Fifty percent of the options will vest
upon earnings per share meeting or exceeding $1.50 per share and fifty percent of the
options will vest upon earnings per share meeting or exceeding $2.00 per share. If the
performance levels have not been met on or prior to the 2nd business day following the
filing of the companys Annual Report on Form 10-K for the year ended December 31,
2012, then any unvested options shall terminate at such time. |
|
(3) |
|
Stock
Awards Vesting Schedule |
|
|
Grant |
|
|
Vesting Schedule |
|
|
| | |
| | |
4/17/2006 (Joe Chang ) | | |
Vest in four equal annual installments beginning on November 1, 2006. | | |
| | |
| | |
All Others | | |
Vest in four equal annual installments beginning one year from the date of grant. | | |
|
(4) |
|
The
market value of the unvested stock awards reported in this column is based
on the closing market price of our stock on December 31, 2008, which
was $10.43. |
Option Exercises and
Stock Vested 2008
The
following table provides information on stock option exercises and vesting of stock awards
for the named executive officers during 2008.
|
Option Awards |
Stock Awards |
|
Name | |
Number of Shares Acquired on Exercise (#) | |
Value Realized on Exercise ($) | |
Number of Shares Acquired on Vesting (#) | |
Value Realized on Vesting ($)(1)(2) | |
|
|
|
|
|
|
|
|
|
|
Truman Hunt |
|
|
| |
|
| |
|
| |
|
| |
|
Ritch Wood | | |
| |
|
| |
|
| |
|
| |
|
Blake Roney | | |
| |
|
| |
|
| |
|
| |
|
Joe Chang | | |
| |
|
| |
|
| 14,732 |
|
| 189,895 |
|
Dan Chard | | |
| |
|
| |
|
| 375 |
|
| 6,176 |
|
(1) |
|
Mr. Chang acquired 14,732 shares with a market price of $12.89 on October 31,
2008 related to vesting of a contingent stock award. Mr. Chard acquired 375
shares with a market price of $16.47 on February 26, 2008 related to vesting of
a contingent stock award. |
(2) |
|
Value realized is based on the market value of stock on the vesting date, and is
calculated before payment of any applicable withholding taxes and broker
commissions. |
-34-
Nonqualified Deferred
Compensation
Pursuant
to our non-qualified Deferred Compensation Plan, certain employees, including the named
executive officers, may elect to defer up to 80% of his or her base salary and up
to 100% of bonus (minus applicable withholding requirements) that otherwise would be
payable in a calendar year. Deferral elections are made prior to the calendar year in
which the deferred salary or bonus will be earned. Additionally, we may also elect to
contribute money (historically 10% of base salary) to the participants deferred
compensation.
Earnings
and losses on deferred compensation are based on market rates and earnings and losses on
participant selected investment funds available under our Deferred Compensation Plan. All
amounts a participant elects to defer, adjusted for earnings and losses thereon, are 100%
vested at all times. As of January 1, 2009, all amounts we elect to contribute to a
participants account, adjusted for earnings and losses thereon, vest as to 50% upon
10 years of employment with us, and vest an additional 5% for each year of employment with
us thereafter until such amounts are 100% vested upon 20 years of employment with
us. In addition, all amounts become 100% vested upon the participant attaining 60
years of age, upon the participants death or disability as defined in the plan, or
otherwise at the discretion of the Compensation Committee.
Our
Deferred Compensation Plan also provides a death benefit that will pay, upon a
participants death prior to the commencement of benefit payments, an amount equal to
the participants deferrals, adjusted for earnings and losses thereon, plus the
greater of (i) the vested portion of company contributions, adjusted for earnings and
losses thereon, or (ii) five times such participants average base salary for
the previous three years. All distributions under the Deferred Compensation Plan are
payable in cash, and the participant may elect either a lump sum payment or monthly,
quarterly, or annual installments over a maximum of 15 years.
The
following table shows the investment funds available under our Deferred Compensation Plan
and their annual rates of return for the fiscal year ended December 31, 2008, as
reported by the administrator of the plan.
Name of Fund |
Rate of Return |
Name of Fund |
Rate of Return |
|
|
|
|
|
|
|
|
LVIP Money Market - Standard Class |
|
2.35% |
|
Neuberger Berman AMT Mid Cap Growth-I-Class |
|
-43.37% |
|
Delaware VIP Capital Reserves Series - Standard Class |
|
-0.29% |
|
Fidelity VIP Mid Cap - Service Class |
|
-39.51% |
|
LVIP Delaware Bond-Standard Class |
|
-2.92% |
|
LVIP Baron Growth Opportunities-Service Class |
|
-39.14% |
|
American Century VP Inflation Protection-Class 2 |
|
-1.59% |
|
Delaware VIP Small Cap Value Series-Standard Class |
|
-29.88% |
|
Templeton FTVIPT Global Income Securities-Class 1 |
|
6.47% |
|
DWS VIP Small Cap Index-Class A | |
-34.12% |
|
LVIP Wilshire Conservative Profile-Standard Class |
|
-18.44% |
|
American Funds Global Growth-Class 2 | |
-38.39% |
|
LVIP Wilshire Moderate Profile-Standard Class | |
-26.62% |
|
American Funds Global Small Capitalization-Class 2 | |
-53.52% |
|
LVIP Wilshire Moderately-Aggressive Profile - Standard Class | |
-33.42% |
|
Templeton FTVIPT Growth Securities - Class 1 | |
-42.13% |
|
LVIP Wilshire Aggressive Profile -Standard Class | |
-40.46% |
|
LVIP Marisco International Growth - Standard Class | |
-48.94% |
|
Fidelity VIP Contrafund - Service Class | |
-42.61% |
|
American Funds International - Class 2 | |
-42.12% |
|
DWS VIP Equity 500 Index - Class A | |
-37.15% |
|
Delaware VIP Emerging Markets Series - Standard Class | |
-51.56% |
|
American Funds Growth - Class 2 | |
-43.97% |
|
Delaware VIP REIT Series - Standard Class | |
-35.06% |
|
Delaware VIP High Yield Series - Standard Class | |
-24.17% |
|
MFS VIT Utilities Series - Initial Class | |
-37.67% |
|
Delware VIP Value Series - Standard Class | |
-33.42% |
|
Franklin FTVIPT Income Securities - Class 1 | |
-29.41% |
|
LVIP Delware Special Opportunities -Standard Class | |
-36.63% |
|
Franklin Mutual Share Securities - Class 1 | |
-36.93% |
|
| |
|
|
Alliance Bernstein VPS International Value - Class A | |
-53.18% |
|
-35-
The
following table provides information on compensation under our non-qualified Deferred
Compensation Plan for the year 2008.
Nonqualified Deferred Compensation -
2008
Name | |
Executive Contributions in Last FY ($)(1) | |
Registrant Contributions in Last FY ($)(1) | |
Aggregate Earnings in Last FY ($) | |
Aggregate Withdrawls/Distributions | |
Aggregate Balance at Last Fiscal YE ($)(2) | |
|
|
|
|
|
|
|
|
|
|
|
Truman Hunt |
|
100,569 |
|
70,000 |
|
(368,686) |
|
|
|
582,529 |
|
Ritch Wood | |
|
|
35,000 |
|
(62,448) |
|
|
|
159,656 |
|
Blake Roney | |
|
|
|
|
|
|
|
|
|
|
Joe Chang | |
196,272 |
|
50,000 |
|
(254,687) |
|
|
|
629,049 |
|
Dan Chard | |
|
|
35,000 |
|
(34,559) |
|
|
|
100,908 |
|
(1) |
|
The amounts reported in this column are reported as compensation for 2008 for
the named executive officers in the Summary Compensation Table under the
Salary, Non-Equity Incentive Plan Compensation or
All Other Compensation columns. |
(2) |
|
The following table identifies amounts that have already been reported as
compensation in our Summary Compensation Table for 2006, 2007 and 2008: |
Name |
2006 ($) |
2007 ($) |
2008 ($) |
Total |
Truman Hunt |
|
|
| 130,376 |
|
| 155,942 |
|
| 170,569 |
|
| 456,887 |
|
Ritch Wood | | |
| 35,000 |
|
| 35,000 |
|
| 35,000 |
|
| 105,000 |
|
Blake Roney | | |
| |
|
| |
|
| |
|
| |
|
Joe Chang | | |
| 233,113 |
|
| 155,059 |
|
| 246,272 |
|
| 634,444 |
|
Dan Chard | | |
| 28,500 |
|
| 30,625 |
|
| 35,000 |
|
| 94,125 |
|
-36-
Potential Payments
Upon Termination or Change of Control
The
information below describes the compensation that would become payable under existing
plans and arrangements if the named executive officers employment had terminated on
December 31, 2008, given the executives compensation and service levels as of such
date, and if applicable, based on our closing stock price on that date. Except as noted
below, all amounts would be payable as a lump sum upon termination, except deferred
compensation, which may be payable as a lump sum or in installments at the election of the
named executive officer. These benefits are in addition to benefits available generally to
salaried employees, such as distributions under our 401(k) plan, subsidized retiree
medical benefits, and disability benefits. In addition, certain obligations of the
officers relating to these payments are described above under the section entitled
Narrative to Summary Compensation Table and Grants of Plan-Based Awards
TableEmployment Agreements.
Blake
Roney has not been included in the chart below because he is not entitled to termination
payments.
Due
to the number of factors that affect the nature and amount of any benefits provided upon
the events discussed below, any actual amounts paid or distributed may be different.
Factors that could affect these amounts include the timing during the year of any such
event, our stock price and the executives age.
Name |
Voluntary Termination ($) |
Involuntary Termination for cause ($) |
Involuntary Termination Not for Cause ($) |
Termination (including constructive termination) in connection with Change of Control ($) |
Death ($)(1) |
Disability ($) |
Truman Hunt |
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance(2) |
|
|
|
|
|
3,000,000 |
|
4,500,000 |
|
|
|
|
|
Equity(3) |
|
|
|
|
|
|
|
|
|
Deferred Compensation(4) | |
223,443 |
|
223,443 |
|
223,443 |
|
223,443 |
|
3,226,633 |
|
582,529 |
|
Health Benefits(5) |
|
|
|
|
|
|
|
31,023 |
|
Excise Tax(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total | |
223,443 |
|
223,443 |
|
3,223,443 |
|
4,754,466 |
|
3,226,633 |
|
582,529 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
Ritch Wood | |
Severance |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity(3) |
|
|
|
|
|
|
|
|
|
Deferred Compensation(4) |
|
|
|
|
|
|
|
|
|
1,750,000 |
|
159,656 |
|
Health Benefits |
|
|
|
|
|
|
|
|
|
Excise Tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total |
|
|
|
|
|
|
|
|
|
1,750,000 |
|
159,656 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
Joe Chang | |
Severance(7) |
|
|
|
|
|
900,000 |
|
900,000 |
|
|
|
|
|
Equity(3) |
|
|
|
|
|
157,566 |
|
157,566 |
|
Deferred Compensation(4) |
|
408,056 |
|
408,056 |
|
408,056 |
|
408,056 |
|
2,866,098 |
|
629,049 |
|
Health Benefits |
|
|
|
|
|
|
|
|
|
Excise Tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total |
|
408,056 |
|
408,056 |
|
1,465,622 |
|
1,465,622 |
|
2,866,098 |
|
629,049 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
Dan Chard | |
Severance(8) |
|
|
|
|
|
525,000 |
|
525,000 |
|
|
|
|
|
Equity(3) |
|
|
|
|
|
|
|
|
|
Deferred Compensation(4) |
|
|
|
|
|
|
|
|
|
1,599,322 |
|
100,908 |
|
Health Benefits |
|
|
|
|
|
|
|
|
|
Excise Tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total |
|
|
|
|
|
525,000 |
|
525,000 |
|
1,599,322 |
|
100,908 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
-37-
(1) |
|
The amounts reported in this column do not include the proceeds payable on death
from term life insurance policies, for which we pay the premiums. |
(2) |
|
Mr. Hunts change of control severance would be payable in the event
he was terminated involuntarily or constructively terminated (in each case,
except for cause) within 24 months of a change of control. |
(3) |
|
The amounts payable under the equity category in the case of restricted stock
units are based on the $10.43 closing price of our stock on December 31, 2008
multiplied by the number of unvested shares that would vest pursuant to the
applicable award. No amounts were included under the equity category for the
vesting of stock option awards because all unvested options held on December 31,
2008 by the named executive officers had exercise prices higher than the closing
price of our stock on such date. |
(4) |
|
The amounts reported for deferred compensation under the Change of
Control column reflect only the amounts deferred by the named executive
officers and earnings on such amounts since none of the amounts contributed by
the company had vested as of December 31, 2008 for any of the named executive
officers. However, the company may, at its discretion, accelerate vesting of the
unvested amounts contributed by the company in the event of a change of control.
If the company were to accelerate vesting, the total amounts of deferred
compensation payable to the named executive officers would be as follows:
Mr. Hunt, $582,529; Mr. Wood , $159,656; Mr. Chang, $629,049; and
Mr. Chard, $100,908. |
(5) |
|
Mr. Hunt would be entitled to continued health benefits for up to 36 months
in the event he was terminated involuntarily or constructively terminated (in
each case, except for cause) within 24 months of a change of control. |
(6) |
|
Mr. Hunt is entitled to tax payments to offset the impact of any excise tax
related to his termination benefits. However, as of December 31, 2008, no excise
tax related payments would have been necessary. |
(7) |
|
Mr. Chang is entitled to continued payment of his retention bonus and salary for
a one-year severance period following termination and such payments are subject
to forfeiture for breach of his key-employee covenants of non-competition,
non-solicitation, and confidentiality during the severance period. The company
may elect to extend the term of Mr. Changs key-employee covenants for an
additional one-year period in exchange for payment of 75% of his base salary
during such period. In addition, in the event Mr. Chang remains continuously
employed by us until age 60 or beyond, upon termination he is entitled to a
four-year consulting contract with us for $250,000 per year. In addition to the
severance payments reported above, Mr. Chang is entitled to receive incentive
bonuses for the severance period to the extent management earns incentive
bonuses. Mr. Changs aggregate target incentive bonus for 2009 is $300,000. |
(8) |
|
Mr. Chard is entitled to severance of 1.5 times his then current annual
base salary in the event we terminate him other than for cause. |
-38-
Equity Compensation
Plan Information
The
following table provides information as of December 31, 2008, about our
Class A Common Stock that may be issued upon the exercise of options, warrants and
rights under all of our existing equity compensation plans (including individual
arrangements):
Plan Category | |
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | |
Weighted-average exercise price of outstanding options, warrants and rights (b) | |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Equity compensation plans
approved by security holders |
|
7,038,800(1) |
|
$16.05 |
|
2,071,773(2) |
| |
| |
Equity compensation plans
not approved by security holders | |
|
|
|
|
|
|
| |
Total | |
7,038,800 |
|
$16.05 |
|
2,071,773 |
(1) |
|
Consists of 6,672,969 options and 365,831 restricted stock units. The
weighted-average exercise price of the outstanding options was $16.93 and
the weighted average remaining life of the options was 5.2 years. |
(2) |
|
Consists of 2,071,773 shares available for future issuance under our 2006
Stock Incentive Plan. |
-39-
REPORT OF THE AUDIT
COMMITTEE OF THE BOARD OF DIRECTORS
The
Audit Committee of the Board of Directors is responsible for monitoring our financial
auditing, accounting, and financial reporting processes and our system of internal
controls on behalf of the Board of Directors. Our management has primary responsibility
for our internal controls and reporting process. Our independent registered public
accounting firm, PricewaterhouseCoopers LLP, is responsible for performing an independent
audit of our consolidated financial statements and the effectiveness of our internal
control over financial reporting in accordance with the standards of the Public Company
Accounting Oversight Board (United States) and issuing an opinion thereon. The Audit
Committees responsibility is to monitor these processes. In this context, the Audit
Committee met and held discussions with management, our internal auditors, and
PricewaterhouseCoopers LLP. Management represented to the Audit Committee that the
consolidated financial statements for the fiscal year 2008 were prepared in
accordance with generally accepted accounting principles.
The
Audit Committee hereby reports as follows:
|
|
|
The
Audit Committee has reviewed and discussed the audited consolidated financial statements
and accompanying managements discussion and analysis of financial condition and
results of operations with our management and PricewaterhouseCoopers LLP. This discussion
included PricewaterhouseCoopers LLPs judgments about the quality, not just the
acceptability, of the accounting principles, the reasonableness of significant judgments,
and the clarity of disclosures in the financial statements. |
|
|
|
The
Audit Committee also discussed with PricewaterhouseCoopers LLP the matters required to be
discussed by the applicable Statements on Auditing Standards, including SAS No. 61
and No. 90, as amended (Communication with Audit Committees). |
|
|
|
PricewaterhouseCoopers
LLP also provided to the Audit Committee the written disclosures and the letter required
by Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), and the Audit Committee has discussed with PricewaterhouseCoopers LLP the
accounting firms independence. The Audit Committee also considered whether
non-audit services provided by PricewaterhouseCoopers LLP during the last fiscal year
were compatible with maintaining the accounting firms independence. |
|
|
|
Based
on the reviews and discussions referred to above, the Audit Committee recommended to the
Board of Directors that the audited consolidated financial statements be included in our
Annual Report on Form 10-K for the year ended December 31, 2008, for
filing with the Securities and Exchange Commission. The Audit Committee also selected,
subject to stockholder ratification, PricewaterhouseCoopers LLP to serve as our
independent registered public accounting firm for the year ending December 31, 2009. |
|
|
AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
Daniel Campbell,
Chairman Nevin Andersen Patricia Negrón Thomas Pisano |
-40-
Certain Relationships
and Related Person Transactions
Review and Approval of
Related Person Transactions
Our
Audit Committee Charter requires that the Audit Committee review related party
transactions that are significant in size, and approve or reject such transactions with
executive officers, members of the Board of Directors, or significant stockholders
submitted for which a special committee of the Board of Directors has not been
established.
In
February 2007, we adopted a written policy and procedures with respect to related person
transactions, which includes specific provisions for the approval of related person
transactions. Pursuant to this policy, related person transactions include a transaction,
arrangement or relationship in which we and certain enumerated related persons
participate, and the amount involved exceeds $25,000.
In
the event that a related person transaction is identified, such transaction must be
reviewed and approved or ratified by our Audit Committee. If it is impracticable for our
Audit Committee to review such transaction, the transaction will be reviewed by the chair
of our Audit Committee if the amount involved is less than $120,000, whereupon the chair
of our Audit Committee will report to the Audit Committee the approval or disapproval of
such transaction.
In
reviewing and approving related person transactions, the Audit Committee, or its chair,
shall consider all information that the Audit Committee, or its chair, believes to be
reasonable in light of the circumstances. The Audit Committee or its chair, as the case
may be, shall approve only those related person transactions that are determined to be in,
or not inconsistent with, our best interests and that of our stockholders, as the Audit
Committee or its chair determines in good faith. No member of the Audit Committee shall
participate in any review, consideration or approval of any related person transaction
with respect to which the member or any of his or her immediate family members has an
interest.
Related Person
Transactions
Leases
We
lease our corporate offices, distribution center, and certain other property pursuant to
lease agreements with two entities, Scrub Oak, Ltd. and Aspen Country LLC, owned by the
following executive officers, directors and 5% or greater stockholders, and their
immediate family members: Blake M. Roney, Sandra N. Tillotson and Steven J. Lund.
In 2008, we incurred lease charges totaling approximately $2.52 million and $1.42
million, respectively, to Scrub Oak and Aspen Country. These lease terms were reviewed and
approved by a committee of one or more independent directors, which engaged its own
independent real estate expert to review the terms and rates of the leases. We have
determined that the terms and rates of the leases were in line with fair market terms and
rates.
-41-
Lease of Airplane
We
periodically charter air service from a charter company, Keystone Aviation LLC, in which
Blake M. Roney, our Chairman of the Board, currently owns a 51% interest.
In 2008, we incurred approximately $749,661 in charges for use of private
charters from this charter company. Keystone Aviation charges us a rate which is
discounted from their regular rate, and which we have determined is at or below the rate
quoted by other charter air service providers. Keystone Aviation leases from time to time
an aircraft from Arrow Plane, L.C. to provide its charter services to us. Mr. Roney
and his spouse directly or indirectly own substantially all of Arrow Plane, L.C.
In 2008, Arrow Plane, L.C. received payments of approximately $290,500 from
Keystone Aviation related to charter services provided to us.
Other
During
2008, we paid employment compensation in excess of $120,000 to three relatives of Blake
Roney. Derek Roney, the brother of Blake Roney, received approximately $137,420 in salary,
bonuses and other compensation during 2008. William Watson, the brother-in-law of
Blake Roney, received approximately $125,378 in salary, bonuses and other compensation,
and 400 restricted stock units during 2008. Richard Watson, the brother-in-law of Blake
Roney, received approximately $128,009 in salary, bonuses and other compensation during
2008. In addition, these employees also participated in the employee benefit plans
available generally to our employees in their respective locations.
Two
sons-in-law of Sandra Tillotson, one of our directors, have independent distributor
accounts that we pay commissions to in excess of $120,000 per year. One of these
individuals, Brandon Sheranian, owns a 50% interest in an account to which we paid a total
of $665,049 in commissions in 2008. The other son-in-law, Jed Knight, has a distributor
account with us to which we paid a total of $290,730 in commissions in 2008. The terms
under which Mr. Sheranian and Mr. Knight act as our independent distributors and/or are
entitled to commissions do not differ from the standard terms we offer to our other
distributors. Any individual who wishes may join our company as an independent
distributor, so long as such person is willing to agree to abide by the policies and the
terms and conditions of our standard independent distributor agreement. As a result, our
Audit Committee does not typically review or approve the engagements of independent
distributors who happen to be related to directors or executive officers unless we propose
to offer such independent distributor special terms that differ materially from the
standard terms.
-42-
PROPOSAL 2
RATIFICATION OF
SELECTION OF
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The
firm of PricewaterhouseCoopers LLP, our independent registered public accounting firm for
the fiscal year ended December 31, 2008, was selected by the Audit Committee of
the Board of Directors to act in the same capacity for the fiscal year ending
December 31, 2009. Representatives of PricewaterhouseCoopers LLP are
expected to be present at the Annual Meeting and will have the opportunity to make a
statement if they so decide and will be available to respond to appropriate questions.
Even if the selection is ratified, the Audit Committee in its discretion may select a
different registered public accounting firm at any time during the year if it determines
that such a change would be in the best interests of our company and our stockholders.
The
following table presents approximate fees for professional services rendered by
PricewaterhouseCoopers LLP for the audit of our annual financial statements for the fiscal
years ending December 31, 2008, and December 31, 2007, and approximate
fees billed for other services rendered by PricewaterhouseCoopers LLP during those
periods.
|
Fiscal 2008 ($) | |
Fiscal 2007 ($) | |
|
|
|
|
|
|
Audit Fees(1) |
|
1,781,000 |
|
1,770,000 |
|
Audit-Related Fees | |
|
|
|
|
Tax Fees(2) | |
1,377,000 |
|
1,584,000 |
|
All Other Fees | |
|
|
|
|
Total | |
3,158,000 |
|
3,354,000 |
|
(1) |
|
Audit Fees consist of fees billed for the audit of annual financial statements,
review of quarterly financial statements and services normally provided in
connection with statutory and regulatory filings or engagements, including
services associated with SEC registration statements. |
(2) |
|
Tax Fees consist of approximately $324,000 in fees for tax compliance work and
$1,053,000 in fees for tax planning work in 2008, and approximately $348,000 in
fees for tax compliance work and $1,236,000 in fees for tax planning work in
2007. |
Audit and Non-Audit
Services Pre-Approval Policy
Under
the Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee must pre-approve
all audit and non-audit services provided by the independent registered public accounting
firm. The policy, as described below, sets forth the procedures and conditions for such
pre-approval of services to be performed by the independent registered public accounting
firm. Under the policy, proposed services may be either pre-approved categorically within
specified budgets (general pre-approval) or specifically pre-approved on a
case-by-case basis (specific pre-approval). In approving any services by the
independent registered public accounting firm, the Audit Committee will consider whether
the performance of any such service would impair the independent registered public
accounting firms independence.
The
Audit Committee must specifically pre-approve the terms and fees of each annual audit
services engagement. All other Audit, Audit-related, Tax, and All Other Services (each
defined in the policy) may be generally pre-approved pursuant to projected categorical
budgets. The Audit services subject to general pre-approval include such services as
statutory audits or financial audits for subsidiaries or affiliates and services
associated with SEC registration statements, periodic reports, and other documents
filed with the SEC or other documents issued in connection with securities offerings.
Audit-related services are assurance and related services that are reasonably related to
the performance of the audit or review of our financial statements that are traditionally
performed by the independent registered public accounting firm. Tax services include tax
compliance, tax planning, and tax advice. All Other Services are those routine and
recurring services that the Audit Committee believes will not impair the independence of
our registered public accounting firm, such as new market development advice and other
miscellaneous services. The SEC prohibits our independent registered public
accounting firm from performing certain non-audit services, and under no circumstances
will the Audit Committee approve such services by it.
-43-
The
Audit Committee will review the generally pre-approved services from time-to-time, at
least annually. Any changes to budgeted amounts or proposed services will require specific
pre-approval by the Audit Committee.
In
2008, all of the services provided by PricewaterhouseCoopers LLP were approved by the
Audit Committee in accordance with the Audit and Non-Audit Services Pre-Approval Policy.
-44-
THE
BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR RATIFICATION OF OUR SELECTION OF
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
OTHER MATTERS
As
of the date of this Proxy Statement, the Board of Directors knows of no other matters to
be brought before the Annual Meeting. If other matters are properly brought before the
Annual Meeting or any adjournment or postponement thereof, it is intended that the persons
named in the enclosed proxy will have discretionary authority to vote on such matters in
accordance with their best judgment, acting together or separately.
STOCKHOLDER PROPOSALS
FOR 2010 ANNUAL MEETING
In
order for a stockholder proposal to be considered for inclusion in our proxy statement for
next years annual meeting, the written proposal must be received by us no later than
December 18, 2009. Such proposals also will need to comply with Securities and Exchange
Commission regulations regarding the inclusion of stockholder proposals in company
sponsored proxy materials. Similarly, in order for a stockholder proposal to be raised at
next years annual meeting, written notice must be received by us no later than
December 18, 2009, and shall contain such information as is required under our Bylaws.
In
addition, our Bylaws permit stockholders to nominate directors at the annual meeting by
providing advance written notice to us. In order to make a director nomination at a
stockholder meeting, a stockholder must notify us not fewer than 120 days in advance
of the date of our proxy statement released to stockholders in connection with the
previous years annual meeting. Thus, since April 17, 2009 is specified as the date
of this years proxy statement, in order for any such nomination notice to be timely
for next years annual meeting, it must be received by us no later than December 18,
2009, (i.e., 120 days prior to April 17). In addition, the notice must meet all other
requirements contained in our Bylaws.
A
stockholder may contact our Corporate Secretary at our headquarters for a copy of the
relevant Bylaw provisions regarding the requirements for making stockholder proposals and
nominating director candidates.
-45-
ANNUAL REPORT TO THE
SECURITIES AND EXCHANGE COMMISSION
A
copy of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008, as filed with the Securities and Exchange Commission, without
exhibits, may be obtained by stockholders without charge by written request to Scott Pond,
Investor Relations Manager, Nu Skin Enterprises, Inc., 75 West Center Street, Provo, Utah
84601. A copy of the Annual Report on Form 10-K is also available on our website,
www.nuskinenterprises.com. Exhibits will be provided upon written request and payment of
an appropriate processing fee.
|
By Order of the Board of Directors,
![](revisedblakesignature.jpg)
Blake M. Roney
Chairman of the Board |
DATED: April 17, 2009
-46-
APPENDIX A FORM
OF PROXY
NU SKIN ENTERPRISES,
INC.
PROXY SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
MAY 18, 2009
The
undersigned hereby appoints M. Truman Hunt and Ritch N. Wood as proxies with full power of
substitution and hereby authorizes either of them to act and to vote, as designated on the
reverse, all shares of Class A Common Stock of Nu Skin Enterprises, Inc. (the
Company) the undersigned is entitled to vote at the Annual Meeting of
Stockholders of the Company to be held at the corporate offices of the Company, 75 West
Center Street, Provo, Utah, May 18, 2009 at 2:00 p.m., Mountain Daylight Time, and at any
adjournments or postponements thereof, upon all matters referred to on this proxy card and
described in the accompanying Proxy Statement, and, at the proxies discretion, upon
any other matters which may properly come before the meeting.
Important
Notice Regarding the Availability of Proxy Materials for the Stockholders Meeting to be Held on
May 18, 2009: The proxy statement and annual report to stockholders are available at
http://materials.proxyvote.com/67018T.
CONTINUED AND TO BE
SIGNED ON REVERSE SIDE
ANNUAL MEETING OF
STOCKHOLDERS OF
NU SKIN ENTERPRISES,
INC.
May 18, 2009
Class A Common Stock
Please sign,
date and mail your proxy card in the envelope provided as soon as possible.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR ALL NOMINEES FOR THE ELECTION OF DIRECTORS AND FOR
PROPOSAL 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK
YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
1.
Elect members of the Board of Directors of the Company.
FOR ALL NOMINEES
WITHHOLD AUTHORITY FOR ALL NOMINEES
FOR ALL EXCEPT (See instructions below)
NOMINEES
Nevin N. Andersen
Daniel W. Campbell
E. J. "Jake" Garn
M. Truman Hunt
Andrew D. Lipman
Steven J. Lund |
|
Patricia A. Negrón
Thomas R Pisano
Blake M. Roney
Sandra N. Tillotson
David D. Ussery
|
INSTRUCTIONS: |
|
To
withhold authority to vote for any individual nominee(s), mark FOR ALL EXCEPT and
fill in the box next to each nominee you wish to withhold, as shown here [X]. |
2. |
To ratify the selection of PricewaterhouseCoopers LLP as the Companys
independent registered public accounting firm for the fiscal year ending
December 31, 2009. |
Shares represented by all properly
executed proxies will be voted in accordance with instructions appearing on this proxy
card and in the discretion of the proxy holders as to any other matters that may properly
come before the meeting. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED
FOR EACH OF THE NOMINEES AND FOR EACH OF THE PROPOSALS SET FORTH ABOVE.
To change the address on your
account, please check the box at right and indicate your new address in the address space
above. Please note that changes to the registered name(s) on the account may not be
submitted via this method.
|
|
|
|
|
|
|
Signature of Stockholder |
|
Date: |
|
Signature of Stockholder |
|
Date:
|
Note: |
|
This
proxy must be signed exactly as the name appears hereon. When shares are held jointly,
each holder should sign. When signing as executor, administrator, attorney, trustee or
guardian, please give full title as such. If the signer is a corporation, please sign
full corporate name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person. |
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