14. STOCK-BASED COMPENSATION PLANS

Our 1997 Equity Participation Plan, as amended (the “1997 Plan”), provided for the grant of stock options, stock appreciation rights, restricted or deferred stock and other awards (“Awards”) to officers, directors and key employees responsible for the direction and management of our company and to non-employee consultants. Such Awards were granted at fair value as of the date of grant. Under the 1997 Plan, a total of 3,500,000 shares of Class A common stock (or the equivalent in other equity securities) were reserved for issuance.

On October 26, 2004, our stockholders adopted the Schiff Nutrition International, Inc. 2004 Incentive Award Plan as amended (the “2004 Plan”). Our 2004 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights, performance shares, performance stock units, dividend equivalents, stock payments, deferred stock, restricted stock units, other stock-based awards, and performance-based awards to officers, directors, employees and consultants of our company and its subsidiaries.

Shares available for grant include 4,800,000 shares of Class A common stock reserved for issuance under the 2004 Plan, plus the number of shares of Class A common stock that as of the date of adoption of the 2004 Plan were, or thereafter would otherwise become, available for issuance under the 1997 Plan.

Restricted stock units (“RSU’s") and restricted shares granted under the 1997 Plan and the 2004 Plan generally vest over a three to five year period; either in equal amounts annually or 100% at the end of the vesting period. For certain RSU grants, the recipient may elect to defer the actual receipt of the shares beyond the vesting date. The fair value of RSU or restricted shares granted was the grant date closing price of our Class A stock.

Stock options granted under the 1997 Plan and 2004 Plan primarily become exercisable after one to five years from the date of grant in equal, ratable amounts on each successive anniversary date. Stock options expire no later than eight years after the date of grant under the 1997 Plan and no later than ten years after the date of grant under the 2004 Plan.

The fair value of options granted was estimated at the date of grant using a Binomial Option pricing model for service-based options or a Monte Carlo simulation model for those options where exercisability is dependent upon achieving a market condition with the following weighted average assumptions for fiscal 2011 and 2009, respectively. There were no options granted during fiscal 2010.



	2012		2011
Expected volatility	42.26%		45.38%
Expected term	6.78	years	7.00	years
Risk-free interest rate	1.88%		2.86%
Dividend yield	0.00%		0.00%

Expected volatility is based on historical volatility of our stock. The expected term, which represents the period of time that options granted are expected to be outstanding, is based on historical data and other factors; including, exercise behavior patterns of differing groups of employees. The risk-free interest rate is based on the U.S. treasury yield curve in effect at the time of the grant.

Information relating to stock options issued under the 1997 Plan and 2004 Plan is as follows:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Options outstanding, June 1, 2009	1,271,267		$	2.82
Granted	—		—
Exercised	(267,600	)	2.60
Canceled, forfeited and/or expired	—		—
Options outstanding, May 31, 2010	1,003,667		2.87
Granted	1,223,643		8.60
Exercised	(754,242	)	2.20
Canceled, forfeited and/or expired	—		—
Options outstanding, May 31, 2011	1,473,068		7.97
Granted	1,430,500		11.63
Exercised	(159,925	)	4.77
Canceled, forfeited and/or expired	—		—
Options outstanding, May 31, 2012	2,743,643		$	10.07	8.89	$	18,481
Exercisable options, May 31, 2012	252,409		$	7.42	6.90	$	2,367

The weighted average grant-date fair value of options granted was $5.26 and $4.42, respectively, for fiscal 2012 and 2011. The total intrinsic value of options exercised was $978, $4,400 and $927, respectively, for 2012, 2011 and 2010. We received $342, $159 and $162, respectively, for stock options exercised during fiscal 2012, 2011 and 2010. In addition, during fiscal 2012, 2011 and 2010 respectively, 38,874, 185,659 and 86,064 shares of common stock valued at $419, $1,502 and $534 (the aggregate exercise price) were surrendered as a result of 83,500, 718,500 and 205,000 stock options exercised in cashless transactions.

Information relating to RSU’s issued under the 1997 Plan and 2004 Plan is as follows:



	Number of Shares		Weighted Average Grant Date Fair Value
RSU's outstanding, June 1, 2009	996,632		$	5.33
Granted	28,422		5.91
Converted	(22,490	)	5.81
Forfeited	(41,416	)	5.55
RSU's outstanding, May 31, 2010	961,148		5.33
Granted	25,523		7.64
Converted	(3,711	)	4.85
Forfeited	—		—
RSU's outstanding, May 31, 2011	982,960		5.39
Granted	4,215		11.86
Converted	(692,575	)	5.24
Forfeited	—		—
RSU's outstanding, May 31, 2012	294,600		$	5.84
Vested RSU's, May 31, 2012	286,295		$	5.60

Information relating to non-vested restricted shares issued under the 1997 Plan and 2004 Plan is as follows:



	Number of Shares		Weighted Average Grant Date Fair Value
Non-vested restricted shares outstanding, June 1, 2009	95,769		$	5.20
Granted	30,096		5.58
Vested	(18,284	)	5.18
Forfeited	(12,819	)	4.68
Non-vested restricted shares outstanding, May 31, 2010	94,762		5.39
Granted	212,257		8.37
Vested	(105,417	)	5.64
Forfeited	—		—
Non-vested restricted shares outstanding, May 31, 2011	201,602		8.39
Granted	56,603		11.76
Vested	(55,531	)	9.10
Forfeited	(4,090	)	8.15
Non-vested restricted shares outstanding, May 31, 2012	198,584		$	9.16

In February 2011, our Board of Directors appointed a new Chief Executive Officer (“CEO”), replacing our retiring CEO, effective March 7, 2011. The Company entered into an employment agreement with the new CEO, pursuant to which he was granted certain equity awards with a grant date value aggregating $6,045. The equity awards consist of 163,637 shares of restricted stock with a grant date value of $1,381; a stock option to purchase 654,550 shares of Class A common stock at an exercise price of $8.44 per share with a grant date value of $2,740; and stock options to purchase 409,093 shares of Class A common stock at an exercise price of $8.44 per share with a grant date value of $1,924. The restricted stock and option to purchase 654,550 shares vest in equal annual installments over a five-year period, in each case subject to continued employment with the Company through each such vesting date. The options to purchase 409,093 shares will be eligible to vest in three stages based upon the Company’s achievement of stock price targets of $15.00, $20.00 and $25.00, in each case subject to continued employment with the Company through applicable service periods ranging from 2.4 to 4.4 years. All stock options granted to the new CEO expire no later than ten years from the grant date. For fiscal 2012 and 2011, respectively, we recognized $1,406 and $328 in compensation expense related to these equity awards.

On December 12, 2008, the Compensation Committee of our Board of Directors, pursuant to the 2004 Plan, approved the grant of long-term incentive performance awards (“Performance Awards”) to certain officers and employees. The Performance Awards were granted based on a target awards value of $5,525 and were originally to be earned based on the Company’s cumulative performance against three pre-established financial performance targets over a performance period commencing October 1, 2008 and ending on May 31, 2011, as follows: (i) 50% of the awards opportunity earned based on cumulative net sales for the performance period; (ii) 35% of the award opportunity earned based on cumulative operating income for the performance period; and (iii) 15% of the award opportunity earned based on cumulative net cash flow for the performance period; provided, however, that no amount would be earned or payable if cumulative operating income for the performance period did not meet or exceed a pre-established threshold amount. In the event that the cumulative operating income threshold was met, participants would earn from 17.5% of the target award value for the Company’s threshold performance against the cumulative operating income goal (and failure to meet the thresholds for the other two financial goals) and up to 150% of the target award value for maximum Company performance against all three financial goals.

The earned value of the Performance Awards was scheduled to vest on May 31, 2011 subject to continued service by the participant(s) through that date. The vested portion of the earned value of the Performance Awards was to be paid in a combination of cash and shares of the Company’s Class A common stock. Two-thirds of the earned value would be delivered to participants in cash (subject to any applicable plan limitations, less applicable taxes), and the remaining balance would be paid in shares, based on the closing price of the Company’s common stock on the day preceding the date of the Compensation Committee’s certification of the Company’s performance, or as otherwise provided in the award agreements. No dividends were to be paid or accrued with respect to shares granted in payment of the Performance Awards until such shares were issued.

Recognition of compensation expense and accrual of the corresponding liability related to the Performance Awards was based on the periodic assessment of the probability that the performance criteria would be achieved. However, the WHF-TPG transaction resulted in the accelerated vesting and payment of the Performance Awards at the target award value of $5,525. As a result, during fiscal 2011, we issued 330,026 shares of Class A common stock valued at $2,508 and paid $3,017 in cash for settlement of the Performance Awards. Concurrent with the settlement, we reacquired (and retired) 220,377 shares valued at $1,675 to satisfy employee minimum income tax withholding requirements. For fiscal 2011 and 2010, respectively, we recognized $2,985 and $2,540 in compensation expense related to the Performance Awards of which $1,661 and $848 was stock-based compensation which was ultimately charged to paid-in capital upon payment of the Performance Awards during fiscal 2011.

On December 12, 2008, the Compensation Committee of our Board of Directors also granted 240,500 RSU's (collectively, the “Units”) to certain employees not participating in the Performance Awards program. Each Unit represented the right to receive one share of the Company's Class A common stock upon vesting. The aggregate value, before forfeitures, of the Units at the grant date was $1,332, which was being expensed over the vesting period. The Units were scheduled to cliff vest on May 31, 2011, or as otherwise provided in the award agreements, assuming the holder was still employed by the Company. The shares were required to be issued within 30 days following vesting. Any dividends declared and payable between the grant date and the vesting date would be payable to the holder following the issuance of the shares. The WHF-TPG transaction resulted in accelerated vesting, but not issuance, of the Units. For fiscal 2011 and 2010, respectively, we recognized $456 and $448 in compensation expense related to the Units. During June 2011, we issued 202,500 shares of Class A common stock for the vested Units.

Aggregate stock-based compensation expense for stock options, RSU's and restricted shares amounted to $2,911, $3,268 and $1,711, respectively, and the related tax benefit was approximately $1,154, $1,296 and $678, respectively, for fiscal 2012, 2011 and 2010. At May 31, 2012, total unrecognized compensation cost related to non-vested share-based compensation awards was approximately $12,046, which is expected to be recognized over a weighted average period of 2.5 years.