Nu Skin 2010 Annual Report - Direct Selling News

NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements
granted under these plans are generally non-qualified stock options,
but the plans permit some stock options granted to qualify as “incentive
stock options” under the U.S. Internal Revenue Code. The exercise
price of a stock option generally is equal to the fair market value of the
Company’s common stock on the stock option grant date. The contractual
term of stock options granted since 1996 is generally ten years.
However, for stock options granted beginning in the second quarter
of 2006, the contractual term has been shortened to seven years. Currently,
all shares issued upon the exercise of stock options are from the
Company’s treasury shares. With the adoption of the 2010 Omnibus
Incentive Plan discussed below, no further grants will be made under
the 1996 Stock Incentive Plan or the 2006 Stock Incentive Plan.
In April 2010, the Company’s Board of Directors approved the
Nu Skin Enterprises, Inc. 2010 Omnibus Incentive Plan (the “2010
Omnibus Incentive Plan”). This plan was approved by the Company’s
stockholders at the Company’s 2010 Annual Meeting of Stockholders
held in May of 2010. The 2010 Omnibus Incentive Plan provides for
granting of a variety of equity based awards including stock options,
stock appreciation rights, restricted stock, restricted stock units, other
share based awards, performance cash, performance shares and performance
units to executives, other employees, independent consultants
and directors of the Company and its subsidiaries. Options
granted under the 2010 Omnibus Incentive Plan are generally nonqualified
stock options, but the 2010 Omnibus Incentive Plan permits
some stock options granted to qualify as “incentive stock options”
under the U.S. Internal Revenue Code. The exercise price of a stock
option generally is equal to the fair market value of the Company’s
common stock on the stock option grant date. The contractual term
of a stock option granted under the 2010 Omnibus Incentive Plan is
seven years. Currently, all shares issued upon the exercise of stock
options are from the Company’s treasury shares. Seven million shares,
subject to certain adjustments, were uthorized for issuance under the
2010 Omnibus Incentive Plan.
The Company has traditionally granted time-vested options.
However, the Company has made several performance based grants
over the last four years. The following is a summary of the terms of
the two most significant grants of performance awards. The compensation
committee of the board of directors approved the grant of
performance stock options to certain senior level executives in the
fourth quarter of 2007 under the 2006 Stock Incentive Plan. Vesting
for the options is performance based, with the options vesting in two
installments if the Company’s earnings per share equal or exceed the
two established performance levels, measured in terms of diluted earnings
per share. Fifty percent of the options vest upon earnings per
share meeting or exceeding the first performance level and fifty percent
of the options vest upon earnings per share meeting or exceeding the
second performance level. As of December 31, 2010, both of the performance
levels were met for these performance stock options, which
resulted in cumulative compensation expense of $8.3 million.
In November 2010, the compensation committee of the board
of directors approved the grant of performance stock options to certain
key employees under the 2010 Omnibus Incentive Plan. Vesting
for the options is performance based, with the options vesting in three
installments if the Company’s earnings per share equal or exceed the
three established performance levels, measured in terms of diluted
earnings per share. One third of the options will vest upon earnings
per share meeting or exceeding the first performance level, one third
of the options will vest upon earnings per share meeting or exceeding
the second performance level and one third of the options will vest
upon earnings per share meeting or exceeding the third performance
level. All unvested options will terminate upon the Company’s failure
to meet certain performance thresholds for each of years 2013 through
2015. In addition, all unvested options will terminate on March 30, 2016.
The Company records an expense each period for the estimated amount
of expense associated with the Company’s projected achievement of
the performance based targets.
The Company has also issued other performance based awards
to a limited number of participants that similarly vest, or become eligible
for vesting, upon achievement of various performance targets.
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