LifevantageLifeVantage Corporation
11545 W. Bernardo Court, Suite 301
San Diego, California 92127
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 19, 2010
To Be Held On January 15, 2010Dear Shareholder:
You are cordially invited to attend the 20092010 Annual Meeting of Shareholders of LifevantageLifeVantage Corporation, a Colorado corporation (the “Company”).corporation. The meeting will be held at our offices located at 10813 S. River Front Parkway, Suite 500, South Jordan, Utah 84095 on January 15,November 19, 2010 at 9:00 a.m. local time in San Diego, California for the following purposes:purposes:
| 1. | | To elect six (6)eight (8) directors to hold office for a one-year term expiring at the 2010our 2011 Annual Meeting of shareholdersShareholders and until their respective successors are elected and qualified. |
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| 2. | | To ratify the appointment of Ehrhardt Keefe Steiner & Hottman PC as our independent auditors of the Companyregistered public accounting firm for itsour fiscal year ending June 30, 2010.2011. |
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| 3. | | To ratify an increase to the shares reserved for issuance under the Company’s 2007adopt our 2010 Long-Term Incentive Plan (“Plan”) from 6 million shares to 10 million shares.Plan. |
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| 4. | | To conduct any other business properly brought before the meeting. |
These items of business are more fully described in the Proxy Statement accompanying this Notice.
Our Boardboard of Directorsdirectors has fixed November 24, 2009September 21, 2010 as the record date for determining the shareholders entitled to receive notice of and to vote at the Annual Meeting.annual meeting. Only shareholders of record at the close of business on that date may vote at the meeting or any adjournment or postponement thereof.
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| | By Order of the Board of Directors
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San Diego, California
October 1, 2010 | | /s/ Carrie E. CarlanderCarrie E. Carlander | | |
| | Carrie E. Carlander | |
| | Chief Financial Officer, Secretary and Treasurer | | |
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San Diego, California
October 28, 2009
You are cordially invited to attend the meeting in person. Whether or not you expect to attend the meeting, please complete, date, sign and return the enclosed proxy as promptly as possible in order to ensure your representation at the meeting. A return envelope (which is postage prepaid if mailed in the United States) is enclosed for your convenience. Even if you have voted by proxy, you may still vote in person if you attend the meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain a proxy issued in your name from that record holder.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON NOVEMBER 19, 2010: This notice, the accompanying proxy statement, and annual report to stockholders are available at http://www.lifevantage.com/investor-sec.aspx
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LifevantageLifeVantage Corporation
11545 W. Bernardo Court, Suite 301
San Diego, California 92127
PROXY STATEMENT
FOR THE 2009
2010 ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 19, 2010
QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING
Why am I receiving these materials?
�� We sent you this proxy statement and the enclosed proxy card because the Boardboard of Directorsdirectors of LifevantageLifeVantage Corporation (sometimes referred to as “we,” “us,” “our,” the “Company” or “LifeVantage”) is soliciting your proxy to vote on the proposals described in this proxy statement at the 20092010 Annual Meeting of Shareholders. You are invited to attend the annual meeting to vote on the proposals described in this proxy statement. However, you do not need to attend the meeting to vote your shares. Instead, you may simply complete, sign and return the enclosed proxy card.
We intend to mail this proxy statement and accompanying proxy card on or about November 24, 2009October 4, 2010 to all our shareholders of record as of the record date entitled to vote at the annual meeting.
Where and when is the Annual Meeting?annual meeting?
The annual meeting will take place January15,on November 19, 2010 at 9:00 a.m. local time at theour offices of the Company’s corporate counsel, Sheppard Mullin Richter & Hampton LLP, located at 12275 El Camino Real,10813 S. River Front Parkway, Suite 200, San Diego, California 92130.500, South Jordan, Utah 84095.
What am I voting on?
There are three matters scheduled to be voted on by shareholders at the annual meeting:
| | • | | Electionthe election of six (6)eight (8) directors to our Boardboard of Directors;directors; |
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| | • | | Approvalthe ratification of a proposal to ratifythe selection of the appointment of Ehrhardt Keefe Steiner & Hottman PC as our independent auditors of the Companyregistered accounting firm for its fiscal year ending June 30, 2010;2011; and |
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| | • | | Approvalthe adoption of a proposal to ratify an increase to the shares approved for issuance under the Company’s 2007our 2010 Long-Term Incentive Plan (“Plan”) from 6 million shares to 10 million shares.Plan. |
Who can vote at the annual meeting?
Only shareholders of record at the close of business on November 24, 2009September 21, 2010, which date we refer to as the “record date,” will be entitled to vote at the annual meeting. As of October 26, 2009, there were 56,967,412the record date we had 69,065,723 shares of common stock outstanding and entitled to vote.
Shareholders of Record: Shares Registered in Your Name
If on November 24, 2009the record date your shares were registered directly in your name with our transfer agent, Computershare Trust Co., Inc., then you are a shareholder of record. As a shareholder of record, you may vote by proxy or vote in person at the meeting. Whether or not you plan to attend the meeting, we urge you to fill out and return the enclosed proxy card to ensure your vote is counted.
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Beneficial Owner: Shares Registered in the Name of a Broker or Bank
If on November 24, 2009the record date your shares were not held not in your name, but rather in an account at a brokerage firm, bank, dealer, or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered to be the shareholder of record for purposes of voting at the annual meeting. As a beneficial owner, you have the right to direct your broker or other agent on how to vote the shares in your account. You are also invited to attend the annual meeting provided that you bring with you proof of your beneficial
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ownership of shares, such as a brokerage account statement. However, if you are not the shareholder of record, you may not vote your shares in person at the meeting unless you request and obtain a valid proxy from your broker or other agent.
How do I vote?
YouWith respect to the election of directors, you may either vote “For”“FOR” all the nominees to our Boardboard of Directorsdirectors or you may “Withhold”“WITHHOLD” your vote for all of the nominees or any nominee you specify. For each ofWith respect to the other matters to be voted on, you may vote “For”“FOR” or “Against”“AGAINST” or abstainyou may ABSTAIN from voting. The procedures for voting are fairly simple:
Shareholder of Record: Shares Registered in Your Name
If you are a shareholder of record, you may vote by proxy using the enclosed proxy card or in person at the annual meeting.
| • | | Voting Your Proxy By Mail.To vote using the proxy card, simply complete, sign and date the enclosed proxy card and return it promptly in the envelope provided. |
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| • | | Vote in Person. To vote in person, come to the annual meeting and we will give you a ballot when you arrive. |
Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the meeting and vote in person if you have already voted by proxy.
| • | | Voting Your Proxy By Mail.To vote using the proxy card, simply complete, sign and date the enclosed proxy card and return it promptly in the envelope provided. If you return your signed proxy card to us before the annual meeting, we will vote your shares as you direct. |
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| • | | Vote in Person. To vote in person, come to the annual meeting and we will give you a ballot when you arrive. |
See “Can I change my vote after submitting my proxy?” below. Beneficial Owner: Shares Registered in the Name of Broker or Bank
If you are a beneficial owner of shares registered in the name of your broker, bank, or other agent, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than from LifeVantage.us. Simply complete and mail the proxy card to ensure that your vote is counted. You may not vote your shares in person at the meeting unless you request and obtain a valid proxy from your broker or other agent.
How many votes do I have?
On each matter to be voted upon, you have one vote for each share of common stock you own as of November 24, 2009.the record date.
How are votes counted?
Votes will be counted by the inspector of election appointed for the meeting, who will separately count “For” and “Withhold” and, with respect to proposals other than the election of directors, “Against” votes, abstentions and broker non-votes.
Because the approval of eachmeeting. Each proposal (other than the election of directors) requires the affirmative vote of a majority of the outstanding shares of common stock, abstentions will be counted towardsapproved if the vote total for eachvotes cast FOR the proposal exceed the votes cast AGAINST the proposal. Because neither abstentions nor broker non-votes are considered cast with respect to a proposal, abstentions and will have the same effect as “Against” votes. Brokerbroker non-votes have no effect and will not be counted towards the vote total for any proposal.
What are broker non-votes?
When a broker indicates on its proxy that it does not have authority to vote certain shares held in “street name” on particular proposals, the shares not voted are called “broker non-votes.” Broker non-votes occur when
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brokers do not have discretionary voting authority on certain “non-routine” proposals under the rules of the New York Stock Exchange (NYSE) and the beneficial owner has not instructed the broker how to vote on these proposals. Both the election of directors andThe ratification of the selection of our independent registered public accounting firm areis the only proposal at the annual meeting that is considered a “routine” mattersmatter under the rules and interpretations of the NYSE.
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How many votes are needed to approve each proposal?
| • | | For the election of directors, the six (6) nominees receiving the most “For” votes (among votes properly cast in person or by proxy) will be elected. Only votes “For” or “Withheld” will affect the outcome. |
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| • | | The ratification of the increase in shares of the Company’s 2007 Long-Term Incentive Plan (“Plan”) from 6 million shares to 10 million shares will be approved if a majority of the outstanding shares vote “For” such ratification. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes will have no effect. |
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| • | | The ratification of the selection of Ehrhardt Keefe Steiner & Hottman PC as our independent auditor for the fiscal year ended June 30, 2009 will be approved if a majority of the outstanding shares vote “For” such ratification. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes will have no effect. |
Directors are elected by a plurality of the votes properly cast in person or by proxy. Cumulative voting is not permitted. The eight (8) nominees receiving the highest number of “FOR” votes will be elected. A properly executed proxy marked “ABSTAIN” with respect to this proposal will not be voted and accordingly will have no effect on the outcome of this proposal. Broker non-votes are not considered to be represented in person or by proxy as to this proposal and therefore will have no effect on the outcome of this proposal.
The 2010 Long-Term Incentive Plan will be adopted by our shareholders if the votes cast FOR the proposal exceed the votes cast AGAINST the proposal. A properly executed proxy marked “ABSTAIN” with respect to this proposal will not be voted and accordingly will have no effect on the outcome of this proposal. Broker non-votes are not considered to be represented in person or by proxy as to this proposal and therefore will have no effect on the outcome of this proposal.
The ratification of the selection of Ehrhardt Keefe Steiner & Hottman PC as our independent auditor for the fiscal year ended June 30, 2011 will be approved by our shareholders if the votes cast FOR the proposal exceed the votes cast AGAINST the proposal. A properly executed proxy marked “ABSTAIN” with respect to this proposal will not be voted and accordingly will have no effect on the outcome of this proposal. A broker or other nominee will generally have discretionary authority to vote on this proposal because it is considered a routine matter, and therefore we do not expect broker non-votes with respect to this proposal.
What does it mean if I receive more than one proxy card?
If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted.
Can I change my vote after submitting my proxy?
Yes. You can revoke your proxy at any time before the final vote at the meeting.it is voted. If you are the record holder of your shares, you may revoke your proxy in any one of three ways:
| • | | You may submit another properly completed proxy card with a later date; |
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| • | | You may send a written notice that you are revoking your proxy to LifeVantage’s Secretary at 11545 W. Bernardo Court, Suite 301, San Diego, California 92127; or |
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| • | | You may attend the annual meeting and vote in person. Simply attending the meeting will not, by itself, revoke your proxy. |
You may submit another properly completed proxy card with a later date;
You may send a written notice that you are revoking your proxy to our Corporate Secretary at LifeVantage Corporation, Attn: Corporate Secretary, 11545 W. Bernardo Court, Suite 301, San Diego, California 92127; or
You may attend the annual meeting and vote in person. Simply attending the meeting will not, by itself, revoke your proxy.
If your shares are held by your broker or bank as a nominee or agent, you should follow the instructions provided by your broker or bank to changerevoke your vote.proxy.
What if I return a proxy card but do not make specific choices?
If you return a signed and dated proxy card without marking any voting selections or without marking your voting selection as to a particular proposal, your shares will be voted “For”“FOR” the election of all six (6)eight (8) nominees for director, “For”“FOR” the ratification of increasing the sharesadoption of the approval of the 2010 Long-Term Incentive Plan and “For”“FOR” the selection of
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Ehrhardt Keefe Steiner & Hottman PC as our independent auditor for our fiscal year ending June 30, 2010.2011, in each case, to the extent your proxy card does not indicate otherwise. If any other matter is properly presented at the meeting, your proxy (one of the individuals named on your proxy card) will vote your shares using his or her best judgment.
What is the quorum requirement?
A quorum of shareholders is necessary to hold a valid meeting. A quorum will be present if at least a majorityof the shares outstanding sharesas of the record date are represented by shareholders present at the meeting or by proxy. As of October 26, 2009, there were 56,967,412the record date we had 69,065,723 shares of common stock outstanding and entitled to vote. Thus, 28,483,70634,532,862 shares of common stock must be represented by shareholders present at the meeting in person or by proxy to constitute a quorum.
Your sharesPersons returning executed proxy cards will be counted towards theas present for purposes of establishing a quorum onlyeven if you submitthey abstain from voting on any or all proposals. Shares held by brokers who vote such shares on any proposal will be counted as present for purposes of establishing a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee) or if you vote in person at the meeting. Abstentionsquorum, and broker non-votes on other proposals will be counted towardsnot affect the quorum requirement. If there is no quorum,presence of a majority of our shareholders entitled to vote at the meeting, present in person or by proxy, shall have the power to adjourn the meeting to another date.quorum.
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Who is paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In addition to these mailed proxy materials, our directors and employees may also solicit proxies in person, by telephone, or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies. We will also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.
When are shareholder proposals due for next year’s annual meeting?
Shareholder Proposals for Inclusion in Next Year’s Proxy Statement.
Shareholders may submit proposals on matters appropriate for shareholder action at meetings of our shareholders in accordance with Rule 14a-8 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”). To be consideredeligible for inclusion in next year’sthe proxy materials, your proposalstatement relating to our 2011 annual meeting of shareholders, shareholder proposals must be submitted in writing by August 10, 2010 to LifeVantage’sLifeVantage Corporation, Attention: Corporate Secretary at 11545 W. Bernardo Court, Suite 301, San Diego, California 92127. If you wish to submit a proposal that is not92127 and must be received by us no later than June 6, 2011 and must otherwise satisfy the conditions established by the Securities and Exchange Commission (“SEC”) for shareholder proposals to be included in next year’sthe proxy statement for that meeting. In addition, our bylaws include other requirements for the submission of proposals and the nomination of candidates for director.
Shareholder Proposals for Presentation at Next Year’s Annual Meeting.
If a shareholder wishes to present a proposal, including a director nomination, at our 2011 annual meeting of shareholders and the proposal is not intended to be included in our proxy statement relating to that meeting, the shareholder must give advance notice in writing to LifeVantage Corporation, Attention: Corporate Secretary at 11545 W. Bernardo Court, Suite 301, San Diego, California 92127 not less than 90 days, or July 6, 2011, nor more than 120 days, or June 6, 2011, prior to the first anniversary of the date on which we first mailed our proxy materials or nominate a director, youfor the 2010 annual meeting; provided, however, that in the event that 2011 annual meeting date is changed by more than 30 days from the anniversary date of the 2010 annual meeting, notice by the shareholder to be timely must dobe so by nodelivered not earlier than August 10, 2010120 days prior to the 2011 annual meeting date and nonot later than September 9, 2010.You are also advisedthe close of business on the later of the 90th day prior to review the Company’s Bylaws,2011 annual meeting date or the 10th day following the day on which contain additional requirements about advancewe first publicly announce the 2011 annual meeting date. If a shareholder fails to give timely notice of a proposal, the shareholder will not be permitted to present the proposal to the shareholders for a vote at our 2011 annual meeting. In addition, our bylaws include other requirements for the submission of proposals and director nominations.the nomination of candidates for director.
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How can I find out the results of the voting at the annual meeting?
Preliminary voting results will be announced at the annual meeting. FinalWe expect to report final voting results will be published in our quarterlya current report on Form 10-Q for8-K that we will file with the second quarter of fiscal year 2010, which we expect to file on or before February 15, 2010.SEC within four business days after the annual meeting. You can obtain a copy of the Form 10-Q,8-K, once it is filed, on our website atwww.lifevantage.com, by calling the Securities and Exchange CommissionSEC at (800) SEC-0330 for the location of the nearest public reference room, or through the EDGAR system atwww.sec.gov. Our website does not constitute part of this proxy statement.
IT IS THE INTENTION OF THE AGENTS DESIGNATED IN THE ENCLOSED PROXY CARD TO VOTE “FOR” THE ELECTION OF EACH NOMINEE FOR DIRECTOR IDENTIFIED BELOW (UNLESS AUTHORITY IS WITHHELD BY THE SHAREHOLDER GRANTING THE PROXY) AND “FOR” PROPOSALS 2 AND 3 BELOW.EACH OTHER PROPOSAL DISCUSSED IN THIS PROXY STATEMENT. IF ANY NOMINEE BECOMES UNAVAILABLE TO SERVE FOR ANY REASON, THE PROXY WILL BE VOTED FOR A SUBSTITUTE NOMINEE OR NOMINEES TO BE SELECTED BY THE COMPANY’S BOARD OF DIRECTORS, UNLESS THE SHAREHOLDER WITHHOLDS AUTHORITY TO VOTE FOR THE ELECTION OF DIRECTORS.
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PROPOSAL 1 —– ELECTION OF DIRECTORS
LifeVantage’s BoardOur board of Directorsdirectors currently consists of six (6) directors. Our Board of Directors proposes thatthe following eight (8) individuals: Mr. David W. Brown, Dr. James D. Crapo, Mr. Jack R. Thompson, Dr. Joe M. McCord, Mr. Richard Doutre’ Jones, and Mr. Garry Mauro, Mr. Douglas Robinson, Mr. Mike Lu & Ms. Kay Stout Manovich. Our board of directors proposes that each of the foregoing individuals be elected asto continue to serve on our board of directors ofat the Company.annual meeting. Each director to be elected will hold office until the next annual meeting of shareholders and until histheir successor is elected and qualified, or, if sooner, until the director’s death, resignation or removal. We encourage nominees for directors to attend the annual meeting. All of the nominees for election as a director at the Company’s 2008 Annual Meetinglast year’s annual meeting of Shareholdersshareholders attended the 2008 Annual Meetinglast year’s annual meeting of Shareholders. Each of the nominees listed below is currently a director of the Company who was previously elected by the shareholders.
Directors are elected by a plurality of the votes properly cast in person or by proxy. Cumulative voting is not permitted. The six (6) nominees receiving the highest number of affirmative votes will be elected. Shares represented by properly executed proxies will be voted, if authority to do so is not withheld, for the election of the six (6) nominees named below. If any nominee becomes unavailable for election as a result of an unexpected occurrence, your shares represented by a duly executed proxy will be voted to fill any vacancy so arising in accordance with the discretionary authority of the persons named in the proxy, unless contrary instructions are given. Each person nominated for election has agreed to serve if elected. Our management has no reason to believe that any nominee will be unable to serve.
Information Concerning Director Nominees
The following information is furnished with respect to each of the director nominees for election at the 2009 Annual Meeting of Shareholders:annual meeting:
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Name | | Age | | Principal Occupation/Position with Company |
Mr. David W. Brown | | | 46 | | | President and Chief Executive Officer |
Dr. James D. Crapo | | | 66 | | | Professor of Medicine/Independent Director |
Mr. Jack R. Thompson | | | 60 | | | President, Kepner Educational Excellence Program/Chairman of the Board |
Dr. Joe M. McCord | | | 64 | | | Professor of Medicine/Director |
Mr. Richard Doutre’ Jones | | | 56 | | | Network Television Executive/Independent Director |
Mr. Garry Mauro | | | 61 | | | Independent Director |
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| Name | | Age | | Position with Company | | Year First Elected as a Director |
| Mr. David W. Brown | | 47 | | Director, President and CEO | | 2008 |
| Dr. James D. Crapo | | 67 | | Independent Director | | 2005 |
| Mr. Richard Doutre’ Jones | | 57 | | Independent Director | | 2008 |
| Mr. Mike Lu | | 41 | | Independent Director | | 2010 |
| Ms. Kay Stout Manovich | | 62 | | Independent Director | | 2010 |
| Mr. Garry Mauro | | 62 | | Chairman, Independent Director | | 2008 |
| Dr. Joe M. McCord | | 65 | | Director | | 2006 |
| Mr. Douglas Robinson | | 47 | | Independent Director | | 2010 |
MR. DAVID W. BROWNMr. David Brown was appointed as our President and CEO of LifeVantage Corporation in January 2008. Prior to joining LifeVantageus he most recently was the Managing Director and Co-Founder of Nutrition Business Advisors, a firm founded in 2003 to provide strategic consulting services, capital raising and full-service business development focused on the $130 billion Global Nutrition Industry. During his tenure at Nutrition Business Advisors,From 2000 to 2003, Mr. Brown is credited with strategically positioning clients for accelerated growth and successful capitalization to fuel expansion and distribution. Mr. Brown also served as President and CEO of Metabolife International from 2000-2003, where he strategically transitioned the company from its role as one of the nation’s largest direct sales organizations to that of a major force in the retail industry.International. From 1994 to 2000, Mr. Brown served as the President of Natural Balance, Inc., a Colorado-based dietary supplement company. Mr. Brown began his career as a corporate attorney, serving atattorney. He was with the law firm of Ballard, Spahr, Andrews & Ingersoll in 1994 and he was with Kindel & Anderson from 1991 —to 1994. Mr. Brown received his Juris Doctorate from Cornell University and Bachelors of Arts from Brigham Young University. Mr. Brown’s strong leadership and business acumen brings to our board of directors expertise in business operations and management.
DR. JAMES D. CRAPODr. Crapo has been a member of our Boardboard of Directorsdirectors since April 2005. Dr. Crapo has nearly 30 years of experience in the health and science field. He has been a Professor at National Jewish Medical and Research Center since June 1996 and served as Executive Vice President of Academic Affairs and Chairman of Medicine from June 1996-2004.1996 to 2004. National Jewish Health is a private institution specializing in immunology and allergic diseases.Dr.diseases. Dr. Crapo also served as Chief Executive Officer of Aeolus Pharmaceuticals, Inc. from July 2004 until December 2004. He was the first scientist to extend Dr. Fridovich’s and Dr. Joe McCord’s original discovery of superoxide dismutase, a natural antioxidant (referredreferred to as “SOD”)“SOD,” to mammalian models of disease. Prior to joining National Jewish, Dr. Crapo spent over 15 years as the Chief of the Pulmonary and Critical Care Medicine Division at Duke University Medical Center. He is involved in a number of professional societies, including service on the NHLBI Advisory Council and serving as President of the American Thoracic Society and President of the Fleischner Society. Dr. Crapo’s scientific background and financial experience and leadership as Chief of Pulmonary Medicine at Duke University and as Chairman of Medicine at National Jewish Health, bring to our board of directors a strong perspective on research and development and financial budgeting and analysis.
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MR. JACK R. THOMPSON Jack R. Thompson has beenRICHARD DOUTRE’ JONESMr. Doutre’ Jones currently serves as a memberconsultant for various media and broadcast related businesses. From 2001 through June 2010, he served as the VP/General Manager of Bay City Television, Inc. (which is XETV/San Diego6 (CW) formerly the FOX affiliate). Prior to joining Bay City Television, Mr. Doutre’ Jones held management and executive positions in the television industry, including serving as the General Sales Manager, Local Sales Manager and National Sales Manager of KBHKTV-UPN44 in San Francisco, California from June 1981 through October 2001. He is currently on the Executive Board of Directors since September 2007of the San Diego Ad Club. From 2002 to 2008, he served on the Fox Television Affiliate Board of Directors of Governors, from 1999 to 2005 he served on The UPN Affiliate Board of Directors of Governors and currently serves as Chairman offrom 2006 to 2008 he served on the MyNetwork Advisory Board of Directors. Mr. Thompson, whoDoutre’ Jones distinguished career in broadcast management and background in operations, marketing, Internet, new media, research and sales provides unique insight to our board of directors. His in-depth understanding of international business, with a focus on U.S. and Mexico relations, brings to our board of directors a perspective on international business operations.
MR. MIKE LUMr. Lu is currently an independent investor in public markets and private equity and serves as an Independent Director and Memberpresident of the Investment CommitteeLu Foundation, which is focused on education and research. He also serves on the board of Russell Funds,advisors for Red Rocks Capital. Mr. Lu managed the Janus Global Technology Fund from its inception in 1999 to 2006. After joining Janus Capital Corporation as an equity analyst in 1991, he served in a variety of research roles, with a focus on technology company analysis. Mr. Lu graduated magna cum laude from Yale University and is a Chartered Financial Analyst. Mr. Lu’s in-depth understanding of finance and his perspective as an investor brings 35to our board of directors expertise in financial modeling and analysis as well as management and oversight.
MS. KAY STOUT MANOVICH Ms. Stout Manovich is an expert on branding strategy, graphic and environmental design with more than 30 years of financialexperience. She founded her own company in 2000, Kay Strategic Branding, where she provides strategic design solutions both globally, as well as locally. Ms. Stout Manovich was with Landor Associates from 1976 to 2000, last serving as Chief Brand Strategist, Worldwide. While with Landor she was responsible for the final creative product across the U.S. and operationalthen Europe and she also managed Landor’s San Francisco and European headquarters. Ms. Stout Manovich was a strategic and creative leader for the graphic look of three Olympic Games: the 1996 Atlanta Summer Games, the 1998 Nagano Winter Olympic Games and the 2002 Salt Lake Winter Olympic Games. A recipient of 16 CLIO Awards, she has been the primary driving force for the brand identities of such consumer brands as Coca-Cola, Del Monte, Dole, Pizza Hut, KFC, RadioShack, Oral B, Colgate, Healthline, Frito-Lay and Wacoal, just to name a few. Ms. Stout Manovich’s in-depth experience in global branding brings to our board of directors a strong set of branding principles in business development, strategy and design.
MR. GARRY MAUROMr. Mauro has worked for over 30 years at the Boardlocal, state and national levels on behalf of Directors. Mr. Thompson was previously an Independent Directorboth private and Chairmanpublic sector entities. From 1983 to 1999, he served as Commissioner of the Audit CommitteeTexas General Land Office overseeing the management of Sparx Asia Fundsmore than 20 million acres of state land, 18,000 oil and was
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President, CEOgas wells, and Directorthe state’s benefit program for Veterans. During his tenure as Commissioner, he also chaired the Veterans Land board of Berger Financial Group. Priordirectors, the School Land board of directors, the Parks and Wildlife board of directors for Lease, the Texas Department of Corrections board of directors for Lease, the University board of directors for Lease, the Coastal Coordination Council and the Texas Alternative Fuels Council and co-chaired the Sustainable Energy Development Council. He has received numerous honors and awards for his civic and philanthropic contributions in environmental, political and business arenas, including the “Man of the Year Award” from the Texas League of Women Voters and the “Rising Star of Texas Award” from Texas Business Magazine. In 1998, he was the Texas Democratic Party nominee for Governor. Mr. Mauro’s broad range of expertise brings to this, Mr. Thompson was Presidentour board of directors experience in management and Director of Janus Service Corporationoperations as well as strong leadership and Senior Vice President and Trustee of Janus Funds and Executive Vice President and Chief Operating Officer of Janus Capital Corporation.oversight.
DR. JOE M. MCCORDDr. McCord has been a member of our Boardboard of Directorsdirectors since February 2006 and was our Director of Science from April 2004 to October 2007. Dr. McCord together with Dr. Irwin Fridovich discovered SODsuperoxide dismutase, a natural antioxidant referred to as “SOD,” in 1969. For this work, Drs. McCord and Fridovich received the Elliot Cresson Medal of the Franklin Institute. Dr. McCord currently serves as Professor of Medicine, Biochemistry, and Microbiology at the University of Colorado at Denver and Health Sciences Center (UCDHSC). Dr. McCord received a lifetime achievement award from the Oxygen Society for outstanding contributions to the field of free radical biology and medicine in 1997. He is Honorary President of the International Society of Antioxidants in Nutrition and Health (ISANH). He chaired the Third International Conference on Superoxide Dismutases: Recent Advances and Clinical Applications, held at the Institut Pasteur in Paris in 2004, as well as earlier conferences in the series. Dr. McCord has published articles in a number of scientific journals,
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including the New England Journal of Medicine.
MR. RICHARD DOUTRE’ JONES Richard Doutre’ Jones has a distinguished career in broadcast management, Dr. McCord’s scientific background brings to our board of directors an experienced perspective and leadership with a background in operations, marketing, Internet, new media,regard to our research and sales. In addition, he has in-depth understanding of international business, with a focus on U.S.development efforts and Mexico relations. Currently, heplans.
MR. DOUGLAS ROBINSONMr. Robinson currently serves as the VP/General ManagerChief Executive Officer of Bay City Television, Inc. (which is XETV/San Diego6 (CW) formerly the FOX affiliate) of San Diego. InWorkWell Systems, a physical medicine and workers’ compensation solutions company. He has served in that capacity, he is responsible for all aspects of the business and is credited with streamlining operations and achieving profitability.role since 2007. Prior to joining Bay City Television,WorkWell Systems, from 2005 to 2007, Mr. Doutre’ Jones held managementRobinson served as SVP Healthcare Transformation for UnitedHealth Group. Prior to United, from 2002 to 2005 he led Deloitte Consulting’s newly formed consumer-driven healthcare practice. From 2001 to 2002, Mr. Robinson served as SVP, National Practice Leader for SynHrgy, an outsourced provider of integrated human resource services including Health and executive positionsWelfare, Integrated Absence Management, Integrated Pension Administration, Workforce Administration and Compensation & Performance Management. From 1998 to 2001, as Director, Healthcare Consulting for PriceWaterhouseCoopers, Mr. Robinson sold and managed the first “full-replace” consumer-driven healthcare engagement from inception through installation, until his division was sold to Mellon Financial. Mr. Robinson began his career as a Senior Account Executive for Blue Cross of Washington and Alaska. Mr. Robinson holds a B.A. degree in the television industry, including serving as the General Sales Manager, Local Sales ManagerMarketing/Public Relations and National Sales Manager of KBHKTV-UPN44 in San Francisco, California. He is currently on the Executive Board of the San Diego Ad Club, and has served for many years on the Fox Television Affiliate Board of Governors and various other civic and industry organizations.
MR. GARRY MAURO Garry Mauro has worked for over 30 years at the local, state and national levels on behalf of both private and public sector entities and is often quoted in the media as an expert on business and political topics. He served for 16 years as Commissioner of the Texas General Land Office overseeing the management of more than 20 million acres of state land, 18,000 oil and gas wells, and the State’s benefit program for Veterans. During his tenure as Commissioner,Speech Communications from Gonzaga University, Spokane, Washington where he also chairedcontinues to guest lecture on healthcare economics to the Veterans Land Board, the School Land Board, the Parksundergraduate and Wildlife Board for Lease, the Texas Departmentgraduate schools. Mr. Robinson’s experience in corporate governance, oversight, operations and financial experience and leadership brings to our board of Corrections Board for Lease, the University Board for Lease, the Coastal Coordination Councildirectors a broad range of expertise and the Texas Alternative Fuels Council; co-chaired the Sustainable Energy Development Council; and held numerous other board memberships in Texas. His access to key policy-makers and his first-hand knowledge of the governmental process has resulted in legislative initiatives resulting in reductions in air pollution, sales of natural gas, improved recycling efficiencies, creation of a state-of-the-art oil spill response and prevention program, and other legislation considered both environmentally and economically sound. He has received numerous honors and awards for his civic and philanthropic contributions in environmental, political and business arenas, including the “Man of the Year Award” from the Texas League of Women Voters and the “Rising Star of Texas Award” from Texas Business Magazine. In 1998, he was the Texas Democratic Party nominee for Governor.oversight.
Board Recommendation
Our Board of Directors recommends the shareholders voteOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR each named director nominee.THE
ELECTION OF DIRECTOR NOMINEES ABOVE.
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IndependencePROPOSAL 2 – RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The audit committee of our board of directors has selected Ehrhardt Keefe Steiner & Hottman PC as our independent registered public accounting firm for the fiscal year ending June 30, 2011 and has further directed that the selection of such firm be submitted to our shareholders for ratification.
Shareholder ratification of the selection of our independent registered public accounting firm is not required. However, the audit committee is submitting this proposal to our shareholders as a matter of good corporate governance. If our shareholders do not vote on an advisory basis in favor of the ratification of the selection of Ehrhardt Keefe Steiner & Hottman PC as our company’s independent registered public accounting firm for the fiscal year ending June 30, 2010, the audit committee will review its future selection of an independent registered public accounting firm. Regardless of whether the selection is ratified, the audit committee in its discretion may, without resubmitting the matter for shareholders to approve or ratify, appoint a different independent 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 shareholders.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
RATIFICATION OF THE SELECTION OF EHRHARDT, KEEFE, STEINER & HOTTMAN PC AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
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PROPOSAL 3 – ADOPTION OF THE 2010 LONG-TERM INCENTIVE PLAN
Summary
We currently maintain the 2007 Long-Term Incentive Plan (“2007 Plan”) under which we could award stock based incentive awards to employees and other service providers. However, the 2007 Plan only has 152,270 shares available for future issuance to grant equity compensation awards to our employees and other service providers.
Therefore, at the annual meeting, shareholders will be asked to approve the LifeVantage Corporation 2010 Long-Term Incentive Plan (the “2010 Plan”) and to authorize up to 3,500,000 shares for issuance under the 2010 Plan. The 2010 Plan was adopted, subject to shareholder approval, by our board of directors on September 27, 2010.
We believe that incentives and stock-based awards focus employees, consultants and directors on the objective of creating shareholder value and promoting the success of our company, and that incentive compensation plans like the proposed 2010 Plan are an important attraction, retention and motivation tool for participants.
Our board of directors approved the 2010 Plan based, in part, on a belief that it helps attract and retain experienced employees, consultants and directors required for our business to grow. Our success will depend significantly upon hiring and retaining such experienced, knowledgeable professionals. There is significant competition for employees with the skills required to develop and sell the products we offer, and for consultants and directors with the experience and qualifications we believe are necessary to successfully grow our business. If we cannot attract, motivate and retain qualified professionals, our business, financial condition and results of operations will suffer.
Similar to the 2007 Plan, the 2010 Plan will permit the discretionary award of incentive stock options, nonstatutory stock options, restricted stock, stock units, stock appreciation rights and cash awards to participants in the 2010 Plan. Such awards may be granted commencing on the date of board approval of the 2010 Plan and continuing through September 26, 2020 or the earlier termination of the 2010 Plan, subject to obtaining shareholder approval.
As of September 21, 2010, the fair market value of a share of our common stock (as determined by the closing price quoted on the OTCBB on such date) was $0.50.
Shareholder approval of the 2010 Plan will allow us to continue to provide long-term incentives to those who are responsible for our success and growth. Increased stock ownership by participants in the 2010 Plan will further align their interests with the interests of our shareholders and will assist us in attracting and retaining talented employees, consultants and directors. Shareholder approval of the 2010 Plan will also enable (i) awards granted to employees covered by Internal Revenue Code (“Code”) Section 162(m) to be eligible to qualify as tax deductible performance-based compensation and (ii) Code Section 422 ISO grants to employees to qualify for favorable federal income tax treatment. If shareholders do not approve the 2010 Plan within one year of the date the 2010 Plan was approved by our board of directors, the 2010 Plan will terminate and any then-outstanding awards granted thereunder shall be forfeited without consideration.
Our board of directors encourages shareholders to consider the following in voting to approve the 2010 Plan. The following points summarize why our board of directors strongly believes the 2010 Plan is essential for our future success:
Achieving superior long-term results always has been a primary objective for our company and therefore it is essential that employees think and act like owners. Stock ownership helps enhance the alignment of the long-term economic interests of shareholders and employees. Accordingly, historically, we have issued equity awards as a long term incentive to attract, motivate and retain employees, consultants and directors. If the 2010 Plan is not approved by shareholders, we will
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| | | essentially have no ability to grant equity compensation awards to valued employees, consultants and directors in the future. |
Our employees are our most valuable asset. Our ability to grant equity compensation awards is vital (i) to attract and keep intact a talented management team and (ii) to attract and retain other talented and experienced individuals as we compete for qualified and talented employees. If the 2010 Plan is not approved by shareholders, we would be at a competitive disadvantage in each of these areas and would need to resort to providing short term incentive or direct immediate compensation to prevent a loss of management and other employees and to continue to attract high caliber executives and employees for our future needs.
A balanced approach to executive compensation, using a mix of salaries, performance-based bonus incentives and long term equity incentives, helps facilitate management decisions that favor longer term stability, profitability and strength over transitory short-term results.
The 3,500,000 shares of common stock that would become available for grant under the 2010 Plan represent approximately5% of the number of shares of common stock that are currently outstanding.
The complete text of the 2010 Plan is attached as Annex A to this proxy statement. Shareholders are urged to review it together with the following information, which is qualified in its entirety by reference to the complete text of the 2010 Plan. If there is any inconsistency between the description of the 2010 Plan included in this proxy statement and the terms of the 2010 Plan, or if the description of the 2010 Plan included in this proxy statement is inaccurate in any respect, the terms of the 2010 Plan shall govern.
Key Features of the 2010 Plan
Certain features of the 2010 Plan are summarized as follows:
A maximum of 3,500,000 shares of common stock may be issued under the 2010 Plan.
Various types of equity-based awards and cash-based performance awards may be issued under the 2010 Plan.
If not terminated earlier, the 2010 Plan will terminate on September 26, 2020.
The 2010 Plan is generally administered by a committee comprised solely of members of our board of directors. Our board of directors has determined that the 2010 Plan will be administered by the compensation committee of our board of directors (“2010 Plan Committee”).
Employees, directors and consultants are eligible to receive awards provided that the 2010 Plan Committee has the discretion to determine (i) who shall receive any awards and (ii) the terms and conditions of such awards.
Stock options and stock appreciation rights may not be granted at per share exercise price below the fair market value of our company common stock on the date of grant.
Stock options and stock appreciation rights may not be repriced without shareholder approval.
Awards can qualify as tax deductible “qualified performance-base compensation” within the meaning of Code Section 162(m).
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Description of the 2010 Plan
Background and Purpose of the 2010 Plan.The purpose of the 2010 Plan is to help promote the long-term success of our company and the creation of shareholder value by:
attracting and retaining the services of employees and certain key service providers,
motivating such employees, through the award of equity and performance-based compensation grants, to achieve long-term performance goals,
providing equity compensation awards that are competitive with similar companies, and
further aligning participants’ interests with shareholders through compensation that is based upon the performance of our common stock which can thereby promote the long-term financial interest of our company and enhance of long-term shareholder return.
The 2010 Plan permits the grant of the following types of equity-based incentive awards: (i) stock options (which can be either incentive stock options or nonstatutory stock options), (ii) stock appreciation rights, (iii) restricted stock, and (iv) stock units. In addition, cash-based performance awards can also be granted under the 2010 Plan.
Eligibility to Receive Awards.Our employees, directors and consultants are eligible to receive awards under the 2010 Plan. The 2010 Plan Committee determines, in its discretion, the persons who will be granted awards under the 2010 Plan. As of September 15, 2010, approximately 35 full-time and seven part-time employees (including three officers and one employee director) and seven non-employee directors would be eligible to participate in the 2010 Plan. Our total number of employees as of September 15, 2010 is approximately 42.
Shares Subject to the 2010 Plan.The maximum number of shares of common stock that can be issued under the 2010 Plan is 3,500,000. The shares underlying forfeited or terminated awards will become available again for issuance under the 2010 Plan and shares that are utilized to pay an award’s exercise price or tax withholding obligations will not count against the maximum numbers of shares that may be issued.
Administration of the 2010 Plan.Our board of directors has determined that its compensation committee will administer the 2010 Plan in its capacity as the 2010 Plan Committee. Subject to the terms of the 2010 Plan, the 2010 Plan Committee has the sole discretion, among other things, to:
select the individuals who will receive awards,
determine the terms and conditions of awards (for example, performance conditions, if any, and vesting schedule),
correct any defect, supply any omission, or reconcile any inconsistency in the 2010 Plan or any award agreement,
accelerate the vesting, extend the post-termination exercise term or waive restrictions of any awards at any time and under such terms and conditions as it deems appropriate, and
interpret the provisions of the 2010 Plan and outstanding awards.
The 2010 Plan Committee may also use the 2010 Plan to issue shares under other plans or subplans as may be deemed necessary or appropriate, such as to provide for participation by non-U.S. employees and those of any of our subsidiaries and affiliates. In addition, awards may be subject to any policy that we may implement on the
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recoupment of compensation (referred to as a clawback policy). We will indemnify the members of our board of directors, the 2010 Plan Committee and their delegates to the maximum extent permitted by applicable law for actions taken or not taken regarding the 2010 Plan.
Types of Awards
Awards issued under the 2010 Plan will be evidenced by a written agreement entered into between our company and the participant. Such agreements will recite the specific terms and conditions of the award.
Stock Options.A stock option is the right to acquire shares at a fixed exercise price over a fixed period of time. The 2010 Plan Committee will determine the number of shares covered by each stock option and the exercise price of the shares subject to each stock option, but such per share exercise price cannot be less than the fair market value of our common stock on the date of grant of the stock option.
Stock options granted under the 2010 Plan may be either incentive stock options, or “ISOs,” or nonstatutory stock options, or “NSOs.” As required by the Code and applicable regulations, ISOs are subject to various limitations. For example, the exercise price for any ISO granted to any employee owning more than 10% of common stock may not be less than 110% of the fair market value of the common stock on the date of grant and the ISO must expire not later than five years after the grant date. The aggregate fair market value (determined at the date of grant) of common stock subject to all ISOs held by a participant that are first exercisable in any single calendar year cannot exceed $100,000. ISOs may not be transferred other than upon death, or to a revocable trust where the participant is considered the sole beneficiary of the stock option while it is held in trust. The 2010 Plan provides that no more than 3,500,000 shares may be issued pursuant to the exercise of ISOs.
A stock option granted under the 2010 Plan generally cannot be exercised until it becomes vested. The 2010 Plan Committee establishes the vesting schedule of each stock option at the time of grant. The maximum term life for stock options granted under the 2010 Plan may not exceed 10 years from the date of grant.
The exercise price of each stock option granted under the 2010 Plan must be paid in full at the time of exercise, either with cash or through a broker-assisted “cashless” exercise and sale program, or through another method approved by the 2010 Plan Committee. The optionee must also make arrangements to pay any taxes that we are required to withhold at the time of exercise.
Stock Appreciation Rights.A stock appreciation right, or “SAR,” is the right to receive, upon exercise, an amount equal to the excess of the fair market value of the shares of common stock on the date of the SAR’s exercise over the fair market value of the shares of common stock covered by the exercised portion of the SAR on the date of grant. The 2010 Plan Committee determines the terms of SARs including the exercise price (provided that such per share exercise price cannot be less than the fair market value of our common stock on the date of grant), the vesting and the term of the SAR. The maximum term life for SARs granted under the 2010 Plan may not exceed 10 years from the date of grant. The 2010 Plan Committee may determine that a SAR will only be exercisable if our company satisfies performance goals established by the 2010 Plan Committee. Settlement of a SAR may be in shares of common stock or in cash, or any combination thereof, as the 2010 Plan Committee may determine.
Restricted Stock.Awards of restricted stock are shares of common stock that vest in accordance with the terms and conditions established by the 2010 Plan Committee. The 2010 Plan Committee also will determine any other terms and conditions of an award of restricted shares. In determining whether an award of restricted shares should be made, and/or the vesting schedule for any such award, the 2010 Plan Committee may impose whatever conditions to vesting as it determines to be appropriate. For example, the 2010 Plan Committee may determine that an award of restricted shares will vest only if our company satisfies performance goals established by the 2010 Plan Committee.
Stock Units.Stock units are the right to receive an amount equal to the fair market value of the shares covered by the stock unit at some future date after the grant. The 2010 Plan Committee will determine all of the terms and conditions of an award of stock units, including the vesting period. Upon each vesting date of a stock unit, the holder thereof will be entitled to receive an amount equal to the then fair market value of the shares on the
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settlement date. The 2010 Plan Committee may determine that an award of stock units will vest only if our company satisfies performance goals established by the 2010 Plan Committee. Payment for vested stock units may be in shares of common stock or in cash, or any combination thereof, as the 2010 Plan Committee may determine. Settlement of stock units will generally occur within 30 days of vesting unless the participant has timely elected to defer such compensation.
Cash Awards.We may also award cash-based performance bonus opportunities to participants under the 2010 Plan. Such cash awards will be (i) payable only in cash, (ii) paid based on achievement of performance goal(s) applying the performance criteria specified below and (iii) intended to qualify as performance-based compensation under Code Section 162(m).
Non-Employee Director Fees.Upon the affirmative determination of our board of directors to authorize such a provision, a non-employee director may elect to receive from 50% to all of his or her annual retainer payments in the form of restricted stock or stock units granted under the 2010 Plan. The terms and conditions of such an arrangement will be determined by our board of directors.
Performance Goals and Annual Grant Limits.The 2010 Plan specifies performance goals that the 2010 Plan Committee may include in awards that are intended to qualify as performance-based compensation under Code Section 162(m). These performance goal criteria shall be limited to one or more of the following target objectives:
| | | | | | | | | | |
|
• | | return on equity | | • | | earnings per share | | • | | total earnings |
| | | | | | | | | | |
• | | earnings growth | | • | | return on capital | | • | | return on assets |
| | | | | | | | | | |
• | | economic value added | | • | | earnings before interest and taxes | | • | | sales or revenue growth |
| | | | | | | | | | |
• | | return on investment | | • | | fair market value or price of our common stock (including, but not limited to, growth measures and total stockholder return) | | • | | net operating profit |
| | | | | | | | | | |
• | | operating income before or after taxes | | • | | cash flow (including, but not limited to, operating cash flow and free cash flow) | | • | | cash flow return on investments (which equals net cash flow divided by total capital) |
| | | | | | | | | | |
• | | internal rate of return | | • | | net present value | | • | | costs or expenses or cost containment or reduction |
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• | | market share | | • | | customer satisfaction | | • | | corporate transactions including without limitation mergers, acquisitions, dispositions and/or joint ventures |
| | | | | | | | | | |
• | | product development | | • | | capital expenditures | | • | | earnings before or after interest, taxes, depreciation and/or amortization |
| | | | | | | | | | |
• | | gross revenue | | | | | | | | |
If the 2010 Plan is approved by our shareholders, then each of the above performance criteria would be approved for use, in our discretion, in awards that are intended to qualify as performance-based compensation under
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Code Section 162(m). Including one or more of the foregoing performance conditions in awards of restricted stock and stock units or in cash-based awards to Covered Employees (as defined below in the federal income tax section) can permit these awards to qualify as performance-based compensation. Certain other awards, such as stock options, may qualify as performance-based compensation under Code Section 162(m) without the inclusion of any of the above performance criteria.
Approval of the material terms of the 2010 Plan (which consists of participant eligibility, the foregoing specified performance condition criteria and the numerical limitations on the magnitude of grants or on the value of cash-based awards) by shareholders is necessary for grants to Covered Employees to qualify for the performance-based compensation exception to the income tax deduction limitations of Code Section 162(m). Qualified performance-based compensation approved by shareholders is not subject to the Code Section 162(m) deduction limit. By seeking approval of the 2010 Plan, the Board also intends to prevent Code Section 162(m) from limiting the deductibility of Directorsawards granted under the 2010 Plan to Covered Employees. In this regard, the 2010 Plan imposes the following annual grant limits on awards that are intended to constitute qualified performance-based compensation under Code Section 162(m).
| | | | | |
| | | Limit Per Fiscal Year | |
| Equity Awards | | 1,250,000 shares |
| Cash Awards | | $ | 1,000,000 | |
The above share grant limit is increased to 2,500,000 shares for equity awards that are granted in the fiscal year that the Covered Employee commences employment or when a participant first becomes a Covered Employee.
However, it is impossible to be certain that all awards granted under the 2010 Plan or any other compensation paid by the Company to Covered Employees will be tax deductible. Further, the 2010 Plan does not preclude the Compensation Committee from making other compensation payments outside of the 2010 Plan to Covered Employees even if such payments do not qualify for tax deductibility under Code Section 162(m). See also the discussion under the heading “Certain Federal Income Tax Information—Internal Revenue Code Section 162(m) Limits” below for further information on Code Section 162(m).
Limited Transferability of Awards.Awards granted under the 2010 Plan generally are not transferrable other than upon death, or pursuant to a court-approved domestic relations order. However, the 2010 Plan Committee may in its discretion permit awards other than ISOs to be transferred. Generally, where transfers are permitted, they will be permitted only by gift to a member of the participant’s immediate family or to a trust or other entity for the benefit of the member(s) of the participant’s and/or his or her immediate family.
Termination of Employment, Death or Disability.The 2010 Plan Committee will determine the effect of the termination of employment on awards, which determination may be different depending on the nature of the termination, such as terminations due to cause, resignation, death, disability or retirement, and Committeesthe status of the award as vested or unvested.
Adjustments Upon Changes in Capitalization.In the event of a subdivision of the outstanding shares, stock dividend, dividend payable in a form other than shares in an amount that has a material effect on the price of the shares, consolidation, combination or reclassification of the shares, recapitalization, spin-off, or other similar occurrence, then the number and class of shares issued under the 2010 Plan and subject to each award, along with any exercise prices, as well as the number and class of shares available for issuance under the 2010 Plan, shall each be equitably and proportionately adjusted by the 2010 Plan Committee.
Corporate Transaction.In the event that our company is a party to a merger or other reorganization, outstanding 2010 Plan awards will be subject to the agreement of merger or reorganization. Such agreement may provide for (i) the continuation of the outstanding awards if our company is a surviving corporation, (ii) the assumption of the outstanding awards by the surviving corporation or its parent, (iii) full exercisability or full vesting, or (iv) cancellation of outstanding awards with or without consideration, in all cases with or without consent of the participant. Neither our board of directors nor the 2010 Plan Committee must adopt the same rules for each award or participant. The 2010 Plan Committee will decide the effect of a change in control of our company on outstanding awards. The 2010 Plan Committee may, among other things, provide that awards will fully vest upon a
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change in control, or upon a change in control followed by an involuntary termination of employment within a certain period of time.
Term of the 2010 Plan.If approved by shareholders, the 2010 Plan will continue in effect until September 26, 2020 or until earlier terminated by our board of directors.
Governing Law.The 2010 Plan will be governed by the laws of the State of Colorado (which is the state of our company’s incorporation) except for conflict of law provisions.
Amendment and Termination of the 2010 Plan.Our board of directors generally may amend or terminate the 2010 Plan at any time and for any reason, except that our board of directors must obtain shareholder approval of material amendments, including any addition of shares, or any repricing or as may be required by applicable stock exchange rules.
Certain Federal Income Tax Information
The following is a general summary, as of September 1, 2010, of the federal income tax consequences to the Company and to U.S. participants for awards granted under the 2010 Plan. The federal tax laws may change and the federal, state and local tax consequences for any participant will depend upon his or her individual circumstances. Tax consequences for any particular individual may be different. This summary is not intended to be exhaustive and does not discuss the tax consequences of a participant’s death or provisions of income tax laws of any municipality, state or other country. The Company advises participants to consult with their own tax advisors regarding the tax implications of their awards under the 2010 Plan.
Incentive Stock Options.For federal income tax purposes, the holder of an ISO has no taxable income at the time of the grant or exercise of the ISO. If such person retains the common stock acquired under the ISO for a period of at least two years after the stock option is granted and one year after the stock option is exercised, any gain upon the subsequent sale of the common stock will be taxed as a long-term capital gain. A participant who disposes of shares acquired by exercise of an ISO prior to the expiration of two years after the stock option is granted or before one year after the stock option is exercised will realize ordinary income as of the date of exercise equal to the difference between the exercise price and fair market value of the stock. Any additional gain or loss recognized upon any later disposition of the shares would be short or long term capital gain or loss depending on whether the shares have been held by the participant for more than one year. The difference between the option exercise price and the fair market value of the shares on the exercise date of an ISO is an adjustment in computing the holder’s alternative minimum taxable income and may be subject to an alternative minimum tax which is paid if such tax exceeds the participant’s regular income tax for the year.
Nonstatutory Stock Options.A participant who receives an NSO generally will not realize taxable income on the grant of such option, but will realize ordinary income at the time of exercise of the stock option equal to the difference between the option exercise price and the fair market value of the stock on the date of exercise. Any additional gain or loss recognized upon any later disposition of the shares would be short or long term capital gain or loss depending on whether the shares had been held by the participant for more than one year.
Stock Appreciation Rights.No taxable income is generally reportable when a stock appreciation right is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the amount of cash received plus the fair market value of any shares received. Any additional gain or loss recognized upon any later disposition of any shares received would be short or long term capital gain or loss depending on whether the shares had been held by the participant for one year or more.
Restricted Stock.A participant will generally not have taxable income upon grant of unvested restricted shares unless he or she elects to be taxed at that time pursuant to a Code Section 83(b) election. Instead, he or she will recognize ordinary income at the time(s) of vesting equal to the fair market value (on each vesting date) of the shares or cash received minus any amount paid for the shares.
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Stock Units.No taxable income is generally reportable when unvested stock units are granted to a participant. Upon settlement of the vested stock units, the participant will recognize ordinary income in an amount equal to the value of the payment received pursuant to the vested stock units.
Income Tax Effects for the Company.The Company generally will be entitled to a tax deduction in connection with an award under the 2010 Plan in an amount equal to the ordinary income realized by a participant at the time the participant recognizes such income (for example, upon the exercise of an NSO).
Internal Revenue Code Section 162(m) Limits.Section 162(m) of the Code places a limit of $1,000,000 on the amount of compensation that the Company may deduct in any one fiscal year with respect to the Company’s principal executive officer and each of the other three most highly compensated officers (other than the principal financial officer) (“Covered Employees”).
The 2010 Plan is intended to enable certain awards to constitute performance-based compensation not subject to the annual deduction limitations of section 162(m) of the Code. However, to maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, the Board has not adopted a policy that all compensation must be tax deductible.
Internal Revenue Code Section 409A.Section 409A of the Code governs the federal income taxation of certain types of nonqualified deferred compensation arrangements. A violation of section 409A of the Code generally results in an acceleration of the recognition of income of amounts intended to be deferred and the imposition of a federal excise tax of 20% on the employee over and above the income tax owed plus possible penalties and interest. The types of arrangements covered by section 409A of the Code are broad and may apply to certain awards available under the 2010 Plan (such as stock units). The intent is for the 2010 Plan, including any awards available thereunder, to comply with the requirements of section 409A of the Code to the extent applicable. As required by Code Section 409A, certain nonqualified deferred compensation payments to specified employees may be delayed to the seventh month after such employee’s separation from service.
New Plan Benefits
All awards under the 2010 Plan will be granted at the 2010 Plan Committee’s discretion and therefore cannot be determined in advance.
Required Vote
At the annual meeting, shareholders will be asked to approve the 2010 Plan. The 2010 Plan will be approved by our shareholders if the votes cast FOR the proposal exceed the votes cast AGAINST the proposal. In the event that shareholder approval is not obtained, we may not make awards under the 2010 Plan.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR ADOPTION OF THE PLAN.
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CORPORATE GOVERNANCE
Director Independence
Even though we are not a listed issuer and our shares are not traded on an exchange, in order to determine whether the members of our Boardboard of Directorsdirectors are independent, the Securities and Exchange Commission (“SEC”)SEC rules require that we use the definition of “independence” of a national securities exchange (such as the New York Stock Exchange or the Nasdaq Stock Market) or national securities association when making this determination. In determining the independence of the members of our Boardboard of Directors,directors, our Boardboard of Directorsdirectors elected to use the definition of independence contained in Nasdaq Stock Market (“Nasdaq”) listing requirements. As required under Nasdaq listing standards, a majority of the members of a listed company’s Boardboard of Directorsdirectors must qualify as “independent,” as affirmatively determined by the Boardboard of Directors. The Boarddirectors. Our board of Directors consultsdirectors consulted with the Company’s legal counsel to ensure that its determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent listing standards of the Nasdaq as in effect from time to time. Consistent with these considerations, after review of all relevant transactions or relationships between each director, or any of his or her family members, and the Company, itsour company, our senior management and itsour company’s independent auditors, our Boardboard of Directorsdirectors affirmatively has determined that Dr. Crapo, Mr. Thompson, Mr. Doutre’ Jones, and Mr. Mauro, Mr. Robinson, Mr. Lu and Ms. Manovich are independent directors within the meaning of the applicable Nasdaqlisting standards. Mr. Brown, the Company’s currentour President and Chief Executive Officer, and Dr. McCord, are not independent directors.
Board Leadership Structure and Role in Risk Oversight
The leadership structure of our board of directors is such that the chair of our board of directors and chief executive officer positions are separated. Mr. Mauro, an independent director, has served as chair of our board of directors since April 2010. We believe having an independent chair of our board of directors with extensive experience in both private and public sector entities at the local, state and national levels has provided our board of directors with consistent, experienced and independent leadership that enhances the effectiveness of our board of directors as a whole. Our corporate governance guidelines do not require our board of directors to choose an independent chair or to separate the roles of chair and chief executive officer, but our board of directors believes this leadership structure is the appropriate structure for our company at this time. Pursuant to our corporate governance guidelines, our board of directors may choose its chair in any manner that it deems to be in the best interests of our company. If, in the future, the chair of our board of directors is not an independent director, our board of directors may designate an independent director to serve as a lead independent director.
Our board of directors is responsible for oversight of risks facing our company, while our management is responsible for day-to-day management of risk. Our board of directors, as a whole, directly administers its risk oversight function. In addition, the risk oversight function is also administered through the standing committees of our board of directors, which oversee risks inherent in their respective areas of responsibility, reporting to our board of directors regularly and involving our board of directors as necessary. For example, the audit committee oversees our financial exposure and financial reporting related risks, and the compensation committee oversees risks related to our compensation programs and practices. Our board of directors as a whole directly oversees our strategic and business risk, including product development risk, through regular interactions with our management and, from time-to-time, input from independent advisors. We believe our board’s leadership structure supports its role in risk oversight, with our chief executive officer and president, our chief financial officer and our chief operating officer responsible for assessing and managing risks facing our company on a day-to-day basis and the chair and other members of our board of directors providing oversight of such risk management.
Meetings of theour Board of Directors and Committees
During the last fiscal year, our Boardboard of Directorsdirectors held six (6)13 meetings. EachOther than Dr. Crapo, each of our incumbent directors attended at least 75% of the aggregate of (1) the total number of meetings of our Boardboard of Directorsdirectors (held during the period for which he has been a director) and (2) the total number of meetings held by all committees of our Boardboard of Directorsdirectors on which he served (held during the periods that he served).
Compensation of Directors
The following table shows certain information with respect to the compensation of all non-employee directors of the Company for the fiscal year ended June 30, 2009:
Director Compensation for Fiscal 2009
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| | | Option awards | | | | | | Total |
| Name | | ($)(1) | | Fees earned or paid in cash | | ($) |
Dr. James D. Crapo(2) | | $ | 20,804 | | | $ | 3,000 | | | $ | 23,804 | |
Dr. Joe M. McCord(3) | | $ | 20,804 | | | $ | 3,000 | | | $ | 23,804 | |
Mr. Jack R. Thompson(4) | | $ | 20,804 | | | $ | 3,000 | * | | $ | 23,804 | |
Mr. Richard Doutre’ Jones (5) | | $ | 25,573 | | | $ | 3,000 | | | $ | 28,573 | |
Mr. Garry Mauro(6) | | $ | 25,573 | | | $ | 3,000 | | | $ | 28,573 | |
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* | | Accrued not yet paid. |
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1. | | The amounts shown in this column represent the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year for stock options granted to the non-employee directors, as determined in accordance with SFAS 123R. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information on the valuation assumptions used to calculate these amounts, see Notes 2 and 7 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2009. These amounts reflect the Company’s accounting expense for these awards, and do not correspond to the actual value that will be recognized by the non-employee directors. |
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2. | | Grant date fair value of option to purchase 120,000 shares of common stock granted in FY2009: $25,023. Total number of shares subject to stock options outstanding at June 30, 2009: 360,000. |
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3. | | Grant date fair value of option to purchase 120,000 shares of common stock granted in FY2009: $25,023. Total number of shares subject to stock options outstanding at June 30, 2009: 495,306. |
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4. | | Grant date fair value of option to purchase 120,000 shares of common stock granted in FY2009: $25,023. Total number of shares subject to stock options outstanding at June 30, 2009: 175,000. |
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5. | | Grant date fair value of option to purchase 120,000 shares of common stock granted in FY2009: $25,023. Total number of shares subject to stock options outstanding at June 30, 2009: 220,000. |
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6. | | Grant date fair value of option to purchase 120,000 shares of common stock granted in FY2009: $25,023. Total number of shares subject to stock options outstanding at June 30, 2009: 220,000. |
Cash Compensation.The Company compensates its Board of Directors with cash compensation of $1,000 per in person meeting and reimburses our directors for documented business- and travel-related expenses directly related to Company business.
The director option grants described above were made pursuant to our 2007 Long-Term Incentive Plan.
Committees of theour Board of Directors
Our Boardboard of Directorsdirectors has (1) an audit committee, (2) a compensation committee, (3) a sciencenominating and governance committee (4) a management and finance committee and (4)(5) a financestrategic planning committee. Below is a description of each committee of our Board of Directors.
Audit Committee
The audit committee was established by our Boardboard of Directorsdirectors in accordance with Section 3(a)(58)(A) of the Exchange Act. The current members of our audit committee are Mr. Jack R. Thompson,Dr. James Crapo, Mr. Garry Mauro and Mr. Richard Doutre’ Jones,Doug Robinson, with Mr. ThompsonDr. Crapo serving as chairman. Our Boardboard of Directorsdirectors has determined that each member of the audit committee qualifies as “independent.” Our Boardboard of Directorsdirectors has also determined that Mr. ThompsonRobinson qualifies as an “audit committee financial expert,” as that term is defined in applicableas defined by SEC regulations.rules. Our Boardboard of Directorsdirectors made a qualitative assessment of Mr. Thompson’sRobinson’s level of knowledge and experience based on a number of factors, including his formal education and his experience as an executive officer for publicoverseeing the CFO and financial reporting companies and his experience as an audit committee chairman forfunction in other publicly traded companies. In addition to serving on our audit committee, Mr. Thompson previously served as chairman of the audit committee of Sparx Asia Funds and currently serves as an Independent Director and Member of the Investment Committee of Russell Funds. Our Board of Directors has determined that such simultaneous service does not impair Mr. Thompson’s ability to effectively serve as chairman of our audit committee.
The audit committee oversees (1) the integrity ofmet four times during our financial statements, (2) our compliance with legal and regulatory requirements; (3) the engagement of our independent auditor and its qualifications and independence; (4) the performance of our internal auditors and independent auditor; and (5) compliance with our code of ethics and code of business conduct and ethics for our personnel. For this purpose, the audit committee performs several functions. The audit committee evaluates the performance of and assesses the qualifications and independence of the independent auditors; determines and approves the engagement of the independent auditors; determines whether to retain or terminate the existing independent auditors or to appoint and engage new independent auditors; reviews and approves the retention of the independent auditors to perform any proposed permissible non-audit services; monitors the rotation of partners of the independent auditors on the audit engagement team as required by law; confers with management and the independent auditors regarding the effectiveness of internal controls over financial reporting; reviews and approves all related-party transactions; prepares an audit committee report as required by the SEC to be included in the annual proxy statement; establishes procedures, as required under applicable law, for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and meets to review our annual audited financial statements and quarterly financial statements with management and the independent auditor, including reviewing disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”last fiscal year.
The audit committee operates under a written charter adopted by our Boardboard of Directorsdirectors that is available on the Company’sour website at www.lifevantage.com. Our website does not constitute part of this proxy statement.
The audit committee met four (4) times during our last fiscal year.was established to
Audit Committee Report1
The audit committee is responsible for overseeing (i) the integrity of our financial statements, (ii) our compliance with legal and regulatory requirements, (iii) our independent registered public accounting firm’s qualifications and independence, (iv) the performance of our independent registered public accounting firm and (v) compliance with our Code of Ethics and Code of Business Conduct and Ethics. Management is responsible for the financial reporting process, including the system of internal controls, for the preparation of consolidated financial statements in accordance with generally accepted accounting principles. Ehrhardt Keefe Steiner & Hottman PC, our independent registered public accounting firm, is responsible for auditing our financial statements and expressing an opinion as to their conformity with generally accepted accounting principles.
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1(a) | | The material in thisassist board oversight of (i) the integrity of our financial statements, (ii) our compliance with legal and regulatory requirements and (iii) the independent auditor’s qualifications and independence, (iv) the performance of our internal audit function and independent auditors; |
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| (b) | | prepare an audit committee report is not “soliciting material,” is not deemed “filed” withas required by the SEC and is not to be incorporated by reference into any filingincluded in our annual proxy statement; |
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| (c) | | evaluate the performance of and assesses the qualifications and independence of our independent auditors; |
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| (d) | | determine and approve the engagement of the Companyindependent auditors; |
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| (e) | | determine whether to retain or terminate the existing independent auditors or to appoint and engage new independent auditors; |
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| (f) | | review and approve the retention of the independent auditors to perform any proposed permissible non-audit services; |
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| (g) | | monitor the rotation of partners of the independent auditors on the audit engagement team as required by law; |
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| (h) | | confer with management and the independent auditors regarding the effectiveness of internal controls over financial reporting; |
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| (i) | | review and approve all related-party transactions; |
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| (j) | | establish procedures, as required under applicable law, for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and |
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| (k) | | to review our annual audited financial statements and quarterly financial statements with management and the independent auditor, including reviewing disclosures under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, other than the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2009, whether made before or after the date hereof and irrespective of any general incorporation language in such filing.section entitled “Management’s |
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The committee has held discussions with management and the independent registered public accounting firm. Management represented to the committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the committee has reviewed and discussed the consolidated financial statements with management and the independent registered public accounting firm. The committee received the written disclosures and letter required by the Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and discussed the independence of the independent registered public accounting firm with the firm. In addition, the committee has discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (Codification of Statements on Auditing Standards, AU §380). | | | Discussion and Analysis of Financial Condition and Results of Operations” contained in our periodic reports. |
The committee has also considered whether the provision of non-audit services to us is compatible with maintaining the independent registered public accounting firm’s independence. The committee has concluded that the independent registered public accounting firm is independent from us and our management. The committee has reviewed with the independent registered public accounting firm the overall scope and plans for their audit.
Relying on the foregoing reviews and discussions, the committee recommended to the Board of Directors the inclusion of the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2009, for filing with the SEC.
The Audit Committee
Jack R. Thompson, Chairman
Garry Mauro
Richard Doutre’ Jones
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Compensation Committee
The current members of ourthe compensation committee are Dr. Crapo, Dr. McCordMr. Doug Robinson, Mr. Mike Lu and Mr. Richard Doutre’ Jones, with Dr. CrapoMr. Robinson serving as chairman. Our Board has determined that all membersAs long as our common stock remains publicly traded, each member of the compensation committee except Dr. McCordshall (1) qualify as “independent.”an “independent” director as defined under applicable NASDAQ rules and (2) qualify as a “non-employee director” under Rule 16b-3(b)(3)(i) promulgated under the Exchange Act. The compensation committee met three times during the last fiscal year.
The compensation committee operates under a written charter adopted by our board of directors that is available on our website at www.lifevantage.com. Our website does not constitute part of this proxy statement.
The compensation committee reviews and approves our overall compensation strategy and policies. The compensation committee (1) reviewshas the following authority and approves corporate performance goals and objectives relevantresponsibilities:
| (a) | | To assist our board of directors in developing and evaluating potential candidates for executive positions and to oversee the development of executive succession plans. |
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| (b) | | To review and approve on an annual basis the corporate goals and objectives with respect to compensation for our Chief Executive Officer. The compensation committee evaluates at least once a year the Chief Executive Officer’s performance in light of these established goals and objectives and based upon these evaluations sets the Chief Executive Officer’s annual compensation, including salary, bonus, incentive and equity compensation. The Chief Executive Officer is not present during any meeting of the compensation committee during which it will vote upon or deliberate the compensation of the Chief Executive Officer. |
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| (c) | | To review, approve and recommend to our board of directors on an annual basis the evaluation process and compensation structure for our other executive officers. The compensation committee evaluates the performance of our executive officers and reviews, approves and recommends to our board of directors the annual compensation, including salary, bonus, incentive and equity compensation, for such executive officers, which is based on a proposal for such amounts submitted to the compensation committee by our Chief Executive Officer. |
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| (d) | | The compensation committee provides oversight of management’s decisions concerning the performance and compensation of our other officers, employees, consultants and advisors. The compensation committee may delegate its authority on these matters with regard to non-officer employees and consultants to our officers and other appropriate supervisory personnel. |
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| (e) | | To review and approve on an annual basis management’s recommendations for the salary range of non-officer employees by pay grade, percent merit increases and bonus pools. |
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| (f) | | To review our incentive compensation and other stock-based plans and recommend changes in such plans to our board of directors as needed. The compensation committee has and exercises all the authority of our board of directors with respect to the administration of such plans. |
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| (g) | | To select, retain and terminate such compensation consultants, outside counsel and other advisors as it deems necessary or appropriate in its sole discretion. The compensation committee may invite such consultants and advisors to attend its meetings or to meet with any members of the compensation committee. The compensation committee has sole authority to approve the fees and retention terms relating to such consultants and advisors. |
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| (h) | | Except with respect to the responsibilities set forth above regarding the compensation of our Chief Executive Officer, the compensation committee may delegate its authority granted under its charter to |
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| | | a subcommittee of the compensation committee (consisting either of a subset of members of the compensation committee or, after giving due consideration to whether the eligibility criteria described above with respect to compensation committee members and whether such other board of directors members satisfy such criteria, any members of our board of directors). |
| (i) | | To review executive officer compensation for compliance with Section 16 of the Exchange Act and Section 162(m) of the Code, and other applicable laws, rules and regulations. |
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| (j) | | To review and approve non-routine employment agreements, severance arrangements and change in control agreements and provisions when, and if, appropriate, as well as any special supplemental benefits. |
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| (k) | | To review and recommend to our board of directors the compensation of independent directors, including incentive and equity based compensation. |
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| (l) | | To report regularly to our board of directors with respect to significant actions and determinations made by the compensation committee. |
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| (m) | | To review its own performance and report on its conclusions in this regard to our board of directors. |
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| (n) | | To perform any other activities consistent with its charter, our certificate of incorporation and by-laws, applicable NASDAQ rules and any other applicable law, as the compensation committee or our board of directors deems appropriate. |
Nominating and Governance Committee
The current members of our executive officersnominating and other senior management;governance committee are Mr. Richard Doutre’ Jones, Dr. James Crapo and Ms. Kay Stout Manovich, with Mr. Doutre’ Jones serving as chairman. As long as our common stock remains publicly traded, each member of the nominating and governance committee shall (1) qualify as an “independent” director as defined under applicable NASDAQ rules and (2) reviewsqualify as a “non-employee director” under Rule 16b-3(b)(3)(i) promulgated under the Exchange Act. The nominating and approves the compensation and other terms of employment of our chief executive officer and other executive officers, including the terms of any employment agreements, severance arrangements and change of control arrangements; (3) makes recommendations to our Board of Directors regarding new compensation plans and programs, including equity compensation plans; (4) administers the 2007 Long-Term Incentive Plan and any other similar programs and (5) reviews director compensation and recommends from time to time to our Board of Directors any proposed changes in such compensation. Our Board of Directors has not yet adopted a written charter for the compensationgovernance committee however the compensation committee formulates its compensation recommendations to the Board of Directors based upon Company performance and other factors.
The Compensation Committee met two (2) timesonce during the last fiscal year.
A discussionThe nominating and governance committee operates under a written charter adopted by our board of directors that is available on our website at www.lifevantage.com. Our website does not constitute part of this proxy statement.
The purpose of the compensation committee’s processesnominating and proceduresgovernance committee is to identify individuals qualified to serve as members of our board of directors, and recommend nominees for the consideration and determination of executive officer and director compensation is included in the Compensation Discussion and Analysis beginning on page 19 of this Proxy Statement.
Compensation Committee Interlocks and Insider Participation
As indicated above, the Company’s compensation committee consists of Dr. Crapo, Dr. McCord and Mr. Doutre’ Jones. Dr. McCord servedelection as the Director of Sciencedirectors of the Company, until Octoberevaluate the performance of 2007, and as such, is not considered an “independent” member. None of the Company’s executive officers serve as a member of theour board of directors, ordevelop and recommend corporate governance guidelines to our board of directors, and provide oversight with respect to the compensation committeeevaluation of any entity that has one or more executive officers who serve on the Company’s Boardour board of Directors or compensation committee.
Compensation Committee Report2directors, management, corporate governance and ethical conduct.
The compensationnominating and governance committee has reviewed and discussed with managementis charged by our board of the Company the Compensation Discussion and Analysis included in this Proxy Statement. Based upon this review and discussion, the compensation committee recommended to the Board of Directors the inclusion of the Compensation Discussion and Analysis in this Proxy Statement and its incorporation in the Company’s Annual Report on Form 10-K for the year ended June 30, 2009, for filingdirectors with the SEC.responsibility to:
The Compensation Committee
James D. Crapo, Chairman
Joe M. McCord
Richard Doutre’ Jones
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2(a) | | The materialIdentify and evaluate individuals qualified to serve as members of our board of directors (including individuals nominated by shareholders in this report is not “soliciting material,” is not deemed “filed” withproposals made in writing to the SECCompany’s Secretary that are timely received and is notthat contain sufficient background information concerning the nominee to enable proper judgment to be incorporatedmade as to the nominee’s qualifications) and establish a process for recruiting suitable candidates to our board of directors, including identifying the characteristics and skills required by reference into any filingour board of the Company under the Securities Actdirectors and those existing on our board of 1933, as amended, or the Securities Exchange Act of 1934, other than the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2009, whether made before or after the date hereof and irrespective of any general incorporation language in such filing.directors. |
| (b) | | Identify and recommend for our board of directors’ selection nominees for election as directors at the meeting of shareholders at which directors are to be elected. |
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Director Nomination Procedures | (c) | | Recommend to our board of directors the appointment of directors to committees of our board of directors and, as appropriate, recommend rotation or removal of directors from such committees. |
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| (d) | | Cause to be prepared and recommend to our board of directors the adoption of corporate governance guidelines, and periodically review and assess the guidelines and recommend changes for approval by our board of directors. |
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| (e) | | Cause to be prepared and recommend to our board of directors the adoption of a code of ethics and a code of conduct, and from time to time review and assess the codes, and recommend changes for approval by our board of directors. |
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| (f) | | Oversee an annual evaluation of the performance of the nominating and governance committee and our board of directors, including individual members of our board of directors, and discuss the evaluation with the full board of directors. |
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| (g) | | Provide minutes of meetings of the nominating and governance committee to our board of directors, and report to our board of directors on any significant matters arising from the committee’s work. |
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| (h) | | At least annually, review and reassess the charter of the nominating and governance committee and, if appropriate, recommend changes to our board of directors. |
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| (i) | | Make recommendations to our board of directors regarding issues of management succession. |
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| (j) | | Perform such other duties and responsibilities as may be assigned to it by our board of directors. |
Our Board of Directors does not have a nominating committee and nominating responsibilities for the addition of new Board members are addressed by the Board of Directors as a whole. Currently, the Board of Directors evaluates and reviews director nominee candidates and is responsible for proposing a slate of nominees to the shareholders for election to the board.
Our members of the Board of Directors are the primary sources for the identification of prospective nominees. The Board may also retain third-party search firms to identify director candidates, and may consider proposed nominees that are identified by shareholders in the manner prescribed by our bylaws. In order for a shareholder to recommend a prospective nominee for election to our Board of Directors at a shareholder meeting, our bylaws require that the shareholder (i) be entitled to vote at the meeting, (ii) provide written advance notice regarding such nomination to our corporate Secretary in accordance with the procedures set forth in our bylaws and (iii) be a shareholder of record at the time of giving the notice.
While the Board currently has no formal written process for evaluating proposed nominees, the members of the Board generally review the resume of a proposed nominee and consult the proposed nominee’s personal references. The Board conducts any other appropriate and necessary background checks of possible candidates. The Board members may also personally interview the proposed nominee, if the Board considers the proposed nominee sufficiently suitable.
The Board evaluates the prospective nominee in order to determine whether the nominee has experience and expertise in our industry, the ability to offer sound advice and guidance to management, sufficient time to devote to the affairs of the Company, and has demonstrated excellence in his or her field and the ability to exercise sound business judgment. Candidates for director nominees are reviewed in the context of the current composition of our Board of Directors, the operating requirements of the Company and its long-term best interests. In conducting this assessment, the Board considers diversity, age, skills, and such other factors as it deems appropriate given the current needs of our Board of Directors and the Company, to maintain a balance of knowledge, experience and capability. In the case of incumbent directors whose terms of office are set to expire, the Board of Directors reviews such directors’ overall service to the Company during their term, including the number of meetings attended, level of participation, quality of performance, and any other relationships and transactions that might impair such directors’ independence. The Board of Directors may modify these qualifications from time to time and is currently considering whether to establish a set of corporate governance practices and policies with additional standards and qualifications.
After its evaluation of a candidate’s qualifications, the Board of Directors then selects a nominee for recommendation to our shareholders by majority vote.
To date, the Board has not paid a fee to any third party to assist in the process of identifying or evaluating director candidates and the Board of Directors has not rejected a timely director nominee from a shareholder or shareholders holding more than 5% of our voting stock.
Other Committees
In addition to the auditcommittees described above, our board of directors also has formed a strategic committee and compensation committee, we also have a science committeemanagement and a finance committee.
The current members of the sciencestrategic committee are Ms. Stout-Manovich, Dr. McCord, Dr. James D. CrapoMr. Doutre’ Jones and Mr. David W. Brown, with Dr. McCordMs. Stout-Manovich serving as chairman. This committee meets on an ad hoc basis as our Boardboard of Directorsdirectors deems necessary to review and advise the Boardour board of Directorsdirectors with respect to matters assigned by theour board of directors to this committee from time to time. The science committee has a written mission statement.
The current members of the management and finance committee are Mr. Brown, Mr. ThompsonMauro, Mr. Lu and Mr. Mauro,Robinson, with Mr. BrownMauro serving as chairman. This committee meets on an ad hoc basis as our Boardboard of Directorsdirectors deems necessary to review financial and fundraisingmanagement matters.
Director Nominations
Criteria for Board Membership
In selecting candidates for appointment or election to our board of directors, the nominating and governance committee considers the appropriate balance of experience, skills and characteristics required of our board of directors, and seeks to insure that at least a majority of the directors are independent under NASDAQ rules, that members of the audit committee meet the financial literacy and sophistication requirements under NASDAQ rules and that at least one of member of the audit committee qualifies as an “audit committee financial expert” under SEC rules. Nominees for director are selected on the basis of their depth and breadth of experience, wisdom, integrity, ability to make independent analytical inquiries, understanding of our company’s business environment, willingness to devote adequate time to board duties, the interplay of the nominee’s experience and skills with those of other directors and the extent to which the nominee would be a desirable addition to our board of directors and any of its committees. Other than the foregoing, there are no stated minimum criteria for director nominees, although the nominating and governance committee may also consider such other factors as it may deem are in the best interests of our company and our shareholders. The nominating and governance committee does not have a
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policy regarding board diversity, but it takes diversity of professional experience and perspective within the dietary supplement industry into account in identifying and selecting director nominees.
Stockholder Recommendations
The nominating and governance committee will consider qualified candidates for director suggested by stockholders by applying the criteria for board membership described above. If a stockholder submits a director recommendation, the nominating and governance committee will conduct an initial evaluation of the proposed nominee and, if it determines the proposed nominee may be qualified, the nominating and governance committee and one or more members of our management team will interview the proposed nominee to determine whether he or she might be suitable to be a director. If the nominating and governance committee determines the proposed nominee would be a valuable addition to our board of directors, based on the criteria for board membership described above and our board of directors’ specific needs at the time, it will recommend to our board of directors such person’s nomination.
Separately, our bylaws contain provisions that address the process by which a stockholder may nominate an individual to stand for election to our board of directors at our annual meeting of stockholders. Such nominations may be made only if the shareholder has given timely written notice to our corporate secretary containing the information required by our bylaws, including as to each person whom the shareholder proposes to nominate for election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected, and as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made, the name and address of such shareholder, as they appear on our books, and of such beneficial owner and the class and number of shares of our company which are owned beneficially and of record by such shareholder and such beneficial owner. To be timely, the notice given by a shareholder must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary of the date on which we first mailed proxy materials for the preceding year’s annual meeting, except that if the date of the annual meeting is changed by more than 30 days from the anniversary date of the previous year’s meeting, such notice must be delivered not earlier than 120 days prior to such annual meeting and not later than the close of business on the later of 90th day prior to such annual meeting or the 10th day following the day on which we first publicly announce the date of such meeting.
Process for Identifying and Evaluating Nominees
Each year before recommending to the board a slate of nominees for director, the nominating and governance committee will consider each incumbent director’s performance on our board of directors and willingness to continue in service. In the ordinary course, absent special circumstances or a material change in the criteria for board membership, the nominating and governance committee will recommend for nomination incumbent directors with skills and experience that are relevant to our business and who are willing to continue in service. If an incumbent director is not willing to stand for re-election, or if a vacancy on our board of directors occurs between annual stockholder meetings and our board of directors determines to fill such vacancy, the nominating and governance committee will identify the desired skills and experience of a new nominee based on the criteria for board membership described above and any specific needs of our board of directors at the time. The nominating and governance committee will then seek suggestions from other members of our board of directors and our senior management as to individuals meeting such criteria. Potential nominees will be selected based on input from members of our board of directors, our senior management and, if the nominating and governance committee deems appropriate, a third-party search firm. The nominating and governance committee will evaluate each potential nominee’s qualifications and check relevant references; in addition, such individuals will be interviewed by at least one member of the nominating and governance committee. Following this process, the nominating and governance committee will determine whether to recommend to our board of directors that a potential nominee be presented as a nominee for election by the stockholders or be appointed to fill a vacancy on our board of directors, as the case may be. Historically, our board of directors nominates for election at our annual stockholder meetings the individuals recommended by the nominating and governance committee.
Shareholder Communications With the Board of Directors
Shareholders interested in communicating with our Boardboard of Directors,directors, a board committee, the independent directors or an individual director may do so by sending an email to Carrie E. Carlander, our Corporate Secretary atCCarlander@Lifevantage.com or writing to Boardour board of Directors, Lifevantagedirectors, LifeVantage Corporation, 11545 W. Bernardo Court, Suite 301, San Diego, California 92127, Attention: Corporate Secretary.
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Communications should specify the addressee(s) and the general topic of the communication. Our Corporate Secretary will review and sort communications before forwarding them to the addressee(s). If no particular director is named, letters will be forwarded, depending on the subject matter, to the chairman of our board of directors or the appropriate committee.committee, as applicable.
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Information Concerning Our Executive OfficersEXECUTIVE OFFICERS
The following table sets forth the names, ages and titles of our executive officers.
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| Name | | Age | | Position |
| David W. Brown | | | 4647 | | | President and Chief Executive Officer |
| Carrie. E. Carlander | | | 3940 | | | Chief Financial Officer, Secretary and Treasurer |
| Kirby L. Zenger | | | 5556 | | | Chief Operating Officer |
Each officer serves at the discretion of our Boardboard of Directorsdirectors and holds office until his or her successor is appointed or until his or her earlier resignation or removal. There are no family relationships among any of our directors or executive officers.
Set forth below is a description of the background of the persons namedMs. Carlander and Mr. Zenger. For a description of Mr. Brown’s background, please see “PROPOSAL 1 – ELECTION OF DIRECTORS,” above.
MR. DAVID W. BROWN Mr. David Brown was appointed President and Chief Executive Officer of LifeVantage Corporation in January 2008. Prior to joining LifeVantage he most recently was the Managing Director and Co-Founder of Nutrition Business Advisors, a firm founded in 2003 to provide strategic consulting services, capital raising and full-service business development focused on the $130 billion Global Nutrition Industry. During his tenure at Nutrition Business Advisors, Mr. Brown is credited with strategically positioning clients for accelerated growth and successful capitalization to fuel expansion and distribution. Mr. Brown also served as President and CEO of Metabolife International from 2000-2003, where he strategically transitioned the company from its role as one of the nation’s largest direct sales organizations to that of a major force in the retail industry. From 1994 to 2000, Mr. Brown served as the President of Natural Balance, Inc., a Colorado-based dietary supplement company. Mr. Brown began his career as a corporate attorney, serving at the law firm of Ballard, Spahr, Andrews & Ingersoll in 1994 and Kindel & Anderson from 1991 — 1994. Mr. Brown received his Juris Doctorate from Cornell University and Bachelors of Arts from Brigham Young University.
MS. CARRIE E. CARLANDERMs. Carlander was appointed as our Chief Financial Officer of LifeVantage Corporation in June 2009, and as our Secretary &and Treasurer in July 2009. From July 2007 through June 2008, Ms. Carlander served as an interim Chief Financial Officer for two privately-held companies: QThink, an IC engineering services company, and Genelux, a development-stage biotech company. From November 2004 through November 2006, Ms. Carlander served as Chief Financial Officer, Secretary, Treasurer and Vice President forof ADVENTRX Pharmaceuticals, Inc. (AMEX:(NYSE Amex:ANX), a publicly traded clinical-stage biotech company. From December 2003 to December 2004, Ms. Carlander served in a consulting capacity as Chief Financial Officer of Singlefin, Inc., an email/internet security software company and as Chief Financial Officer of SofLinx, Inc., a wireless sensor network and software company. From December 2002 to June 2004, Ms. Carlander served as Vice President of Finance of V-Enable, Inc., a software company specializing in multimodal software for wireless devices. From December 1996 to May 2000, Ms. Carlander served first as Director of Finance and Human Resources, and then as Vice President, Finance and Administration, of Websense Inc. (Nasdaq:WBSN), a publicly traded company that provides software products that analyze, report and manage computing resource use by employees. Ms. Carlander received her B.A. in Political Science from University of California, San Diego, her MBA from San Diego State University and a Certified Management Accountant designation from the IMA.
MR. KIRBY L. ZENGERMr. Zenger joined LifeVantage Corporation in February 2009was appointed as our Executive Vice President-General Manager in February 2009 and has since been namedwas appointed as our Chief Operating Officer. Most recentlyOfficer in June 2009. Before joining our company, he was a Founder and EVP / General Manger for Zrii LLC, an international network marketing company founded in 2007. He was integral in the architecture and strategic development of the Zrii business plan. Execution of the Zrii plan resulted in industry record-setting revenue in the first year. At Zrii, he managed the total daily operations of the company. HeIn 2006, he served as Vice President of Global Sales for Young Living Essential Oils, a $100 million annual revenue network marketing company in 2006. He alsocompany. From 2004 to 2006, Mr. Zenger was General Manager of North America for Synergy Worldwide, a subsidiary of Nature’s Sunshine, a $400 million annual revenue direct selling company of 20 years from 2004-2006. Mr. Zenger has an extensive background in sales, sales organizational development, leadership development and strategic planning. At Franklin Covey in 1998-2003company. From 1998 to 2003, he served as a Client Partner and Director of Technology Sales. He has worked for and consulted to Fortune 500 and 1000 companies and was responsible for new market development, sales force organization, and training in national and international roles. His professional career in sales has allowed him experiences in varied industries from manufacturing, finance, recreational property development, and franchising. HeSales of Franklin Covey. Mr. Zenger studied advertising and business management at the University of Utah and LDS Business College with additional accreditation in leadership development and strategic planning.
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Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information regarding the ownership of the Company’s common stock as of October 26, 2009 by: (i) each director and nominee for director; (ii) each of the executive officers named in the Summary Compensation Table; (iii) all executive officers and directors of the Company as a group; and (iv) each person who is known to us to own beneficially more than five percent of our common stock. The shares disclosed in this table are based upon information supplied by officers, directors and principal shareholders and filings made by shareholders with the Securities and Exchange Commission.
Except as otherwise noted, the address for each person listed below is c/o Lifevantage Corporation, 11545 W. Bernardo Court, Suite 301, San Diego, California 92127.
The percentages of beneficial ownership set forth below are based on 56,967,412 shares of our common stock issued and outstanding as of October 26, 2009.
| | | | | | | | | |
| Beneficial Owner (1) | | Number of Shares | | Percent of Class |
| David W. Brown | | | 1,275,251 | (2) | | | 2.2 | % |
| Carrie E. Carlander | | | — | (3) | | | * | |
| Kirby L. Zenger | | | — | (4) | | | * | |
| Bradford K. Amman | | | 347,185 | (5) | | | * | |
| Dr. James D. Crapo | | | 1,025,000 | (6) | | | 1.8 | % |
| Dr. Joe M. McCord | | | 2,078,773 | (7) | | | 3.7 | % |
| Jack R. Thompson | | | 1,841,784 | (8) | | | 3.2 | % |
| Richard Doutre’ Jones | | | 410,000 | (9) | | | * | |
| Garry Mauro | | | 510,000 | (10) | | | * | |
| Rodney D. Dir Revocable Trust | | | 4,366,910 | (11) | | | 7.7 | % |
| dated July 13, 2001 | | | | | | | | |
| Mr. Rodney Dale Dir, Trustee | | | | | | | | |
| 6024 W. Hurley Avenue | | | | | | | | |
| Visalia, CA 93291 | | | | | | | | |
| | | | | | | | | |
| Leigh Severance | | | 4,084,757 | (12) | | | 7.2 | % |
| | | | | | | | | |
| All named executive officers and directors as a group (nine persons) | | | 7,487,993 | (13) | | | 13.1 | % |
| | |
* | | Less than one percent. |
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1 | | The shares of our common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares voting power, which includes the power to vote or direct the voting of such security, or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Securities that can be so acquired are deemed to be outstanding for purposes of computing such person’s ownership percentage, but not for purposes of computing any other person’s percentage. Under these rules, more than one person may be deemed beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the SEC. Except as otherwise indicated in these footnotes and subject to community property laws where applicable, each of the beneficial owners has, to our knowledge, sole voting and investment power with respect to the indicated shares of common stock. In accordance with the beneficial ownership rules of the SEC, the table does not reflect an aggregate of 1,770,834 shares of common stock reserved for issuance upon the exercise of outstanding options not exercisable within 60 days held by certain of our directors and executive officers. |
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2 | | Includes 100,000 shares owned by Mr. Brown. Also includes shares which Mr. Brown has the right to acquire or will have the right to acquire within 60 days of October 26, 2009 pursuant to an option to purchase 600,000 shares at $0.23 per share, 412,500 shares at $0.50 per share, 62,751 shares at $0.30 per share, and a warrant to purchase 100,000 shares at $0.50 per share. |
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| | |
3. | | An option to purchase 500,000 shares of common stock at a price of $0.54 per share was granted to Ms. Carlander on July 31, 2009. These shares vest and become exercisable on July 31, 2010. |
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4 | | An option to purchase 150,000 shares of common stock at a price of $0.70 per share was granted to Mr. Zenger on March 27, 2009 and an additional option to purchase 100,000 shares of common stock at a price of $0.54 per share was granted to Mr. Zenger on July 31, 2009. These shares vest and become exercisable on March 27, 2010 and July 31, 2010 respectively. |
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5 | | Includes 78,614 shares owned by Mr. Amman. Also includes shares which Mr. Amman has the right to acquire or will have the right to acquire within 60 days of October 26, 2009 pursuant to options to purchase 120,000 shares at $0.76 per share, 28,571 shares at $0.49 per share, 70,000 shares at $0.35 per share and a warrant to purchase 50,000 at $0.50 per share. |
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6 | | Includes 50,000 shares owned by Dr. Crapo, 125,000 shares owned by Dr. Crapo and his wife as tenants in common, and 450,000 shares held in Dr. Crapo’s Individual Retirement Account. Also includes shares which Dr. Crapo has the right to acquire or will have the right to acquire pursuant to an option to purchase 120,000 shares at $0.49 per share and 230,000 shares for which he has a right to acquire within 60 days of October 26, 2009 at an exercise price of $0.21. |
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7 | | Includes 1,606,800 shares of common stock owned by Dr. McCord. Also includes shares which Dr. McCord has the right to acquire or will have the right to acquire within 60 days of October 26, 2009 pursuant to options to purchase 241,973 shares of our common stock at $0.49 per share and 230,000 shares of our common stock at $0.21 per share. . |
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8. | | Includes 1,026,784 shares held of record by Mr. Thompson, and 165,000 shares which Mr. Thompson has the right to acquire or will have the right to acquire within 60 days of October 26, 2009 pursuant to an option to purchase shares of our common stock at $0.21 per share. Also includes 150,000 “as converted” common shares for which Mr. Thompson has the right to acquire pursuant to a convertible note received in the 2007 private placement and 500,000 shares for which Mr. Thompson has the right to acquire pursuant to warrants issued in the March/April 2009 private placement at an exercise price of $0.50 per share. |
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9. | | Includes 100,000 shares owned by Mr. Doutre’ Jones. Also includes shares which Mr. Doutre’ Jones has the right to acquire or will have the right to acquire within 60 days of October 26, 2009 pursuant to options to purchase 100,000 shares at $0.30 per share and 110,000 at $0.21 per share and a warrant to purchase 100,000 shares at $0.50 per share. |
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10. | | Includes 150,000 shares owned by Mr. Mauro. Also includes shares which Mr. Mauro has the right to acquire or will have the right to acquire within 60 days of October 26, 2009 pursuant to an option to purchase 100,000 shares at $0.30 per share and 110,000 at $0.21 per share and a warrant to purchase 150,000 shares at $0.50 per share. . |
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11. | | Includes 1,433,331 shares held by Mr. Severance, 65,231 shares owned by Mr. Severance’s wife, 469,215 shares held by the H.L. Severance, Inc. Pension Plan and Trust and 416,980 shares held by the H.L. Severance, Inc. Profit Sharing Plan and Trust. Also includes shares which Mr. Severance has the beneficial right to acquire within 60 days of October 26, 2009 pursuant to warrants to purchase 800,000 shares and a note convertible into 900,000 shares. |
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12. | | Includes 2,366,910 shares held of record by the Rodney D. Dir Revocable Trust, dated July 13, 2001 (“Trust”) and shares which the Trust has the right to acquire within 60 days of October 26, 2009 pursuant to a warrant to purchase 2,000,000 shares. |
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13. | | See notes (2) through (10) above. |
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EXECUTIVE COMPENSATION MATTERS
Compensation Discussion and Analysis
This compensation discussion and analysis provides information regarding the compensation that may be awarded to, earned by or paid to the named executed officers. It includes information regarding the objectives of our compensation program, our compensation processes and procedures, each element of compensation that we provide, why we choose these elements, and how we determine the amount of each component to pay. This compensation discussion and analysis should be read in conjunction with the tables and related discussion beginning on page 22 of this Proxy Statement.
Compensation Program Objectives
Our executive compensation program is designed to attract, retain and motivate talented executives capable of providing the leadership, vision and execution necessary to achieve our business objectives and create long-term shareholder value. We actively seek to foster a pay-for-performance environment that aligns the interests of our executive officers with the creation of shareholder value. To this end, our compensation program is strongly linked to the delivery of long-term returns to our shareholders, the achievement of short- and long-term strategic business objectives, individual performance, and the demonstration of competencies that are aligned with our culture and values and that will contribute to our long-term success.
Compensation Program Components and Procedures
OurThe compensation committee of our board of directors is responsible for overseeing our compensation policies, plans and programs, and reviewing and determining the salary, bonuses, equity incentives, perquisites, severance arrangements and other related benefits paid to our directors and executive officers. Our compensation committee has implemented a performance-based compensation program, which ties a substantial portion of our executives’ overall compensation to the achievement of measurable corporate and individual performance objectives and the creation of shareholder value. As described in more detail below, our executive compensation program consists of one or more of the following key components: base salary, performance-based bonuses, long-term equity incentives and severance and change-in-control benefits. The compensation committee has not established any formal policies or guidelines for allocating compensation between cash and non-cash compensation, except that due to cash constraints of the Company, compensation in recent years has been largely in the form of non-cash equity compensation. However, commensurate with the Company’s philosophy of establishing a link between compensation and corporate performance, the compensation committee believes that a significant portion of each executive’s total compensation should be performance-based, reflecting both upside potential and down-side risk.
The compensation committee’s executive compensation procedure comprises two related elements: the establishment of performance objectives and the determination of executive compensation levels. The compensation committee reviews and approves annual performance objectives for the corporation as a whole and for each individual executive officer. Corporate objectives are designed to target the achievement of specific product development, corporate development, financial and operational milestones. Individual objectives focus on contributions that are consistent with and support the corporate objectives or are otherwise intended to contribute to the success of the Company. The annual corporate and individual performance objectives are proposed by management and reviewed and approved by the compensation committee. The corporate objectives are also subject to review and approval by the full Board.
Annually, the Chief Executive Officer conducts a performance appraisal for each executive officer (other than himself) for the year. The Chief Executive Officer also evaluates the degree of achievement of the annual corporate and individual performance objectives and submits his recommendations to the compensation committee for any base salary increases, bonuses and/or stock option awards for each executive officer (other than himself). The Chief Executive Officer’s recommendations and compensation committee’s determinations are generally based upon a number of factors, including: the executive’s individual performance for the year, the degree of achievement of annual corporate and individual performance objectives, comparisons with market data for compensation paid to comparable executives of other nutraceutical companies, with a particular focus on companies of comparable sizes and stages of development, the executive’s compensation relative to other executive officers at the Company, and the importance of the executive’s continued service with the Company.
In the case of the Chief Executive Officer, his individual performance appraisal is conducted by the compensation committee, which determines his compensation adjustments and awards, if any, based on these same factors. The Chief Executive Officer may not participate in or be present during any deliberations or determinations of the compensation committee regarding his compensation. To
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the extent approved, any base salary increases, bonuses and/or stock option awards for the executives, including the Chief Executive Officer, are implemented.
Compensation Elements
OurHistorically, our executive compensation program consists of the following key components: base salary, discretionary performance-based bonuses, long-term equity incentives severance and change in control benefits and other factors.
Our compensation committee believes that these components are the most effective combination in motivating and retaining talented In addition, currently our chief executive officers at this stage in our development.officer has severance benefits. The compensation committee does not have any specific targets for the percentage of compensation represented by each component, although a significant percentage of total compensation is allocated to long-term equity incentives as a result of the compensation philosophy discussed above.component. As a general matter, subject only to limited exceptions, we do not provide perquisites or benefits for our named executive officers on a basis that is different from other eligible employees.
Base Salary
Base salary is the primary fixed component of our executive compensation program. We use base salary to compensate executives for services rendered during the fiscal year, and to ensure that we remain competitive in attracting and retaining executive talent. Base salaries are generally set within a range of salaries paid to industry peers with comparable qualifications, experience, responsibilities and performance at similar companies.
For newly hired executives, the compensation committee determines base salary on a case-by-case basis by evaluating a number of factors, including the executive’s qualifications and experience, the competitive recruiting environment for his or her services, the executive’s anticipated role and responsibilities with our company, the executive’s past compensation history, and comparisons to market data regarding compensation levels for comparable executives of other nutraceutical companies of similar sizes and stages of development.
For continuing executives, the compensation committee reviews base salaries annually as part of our company’s performance review and appraisal process. Base salary increases, if any, are based primarily on each executive’s job performance for the prior year, as well as a review of competitive market data, the executive’s compensation relative to other executive officers, the importance of the executive’s continued service with us and our company’s financial condition.
Bonuses
During fiscal year 2010, our board of directors had the discretion, and based upon the recommendation of our compensation committee, to award bonuses to our executive officers. In determining whether to recommend to our board of directors that an executive officer be awarded a discretionary bonus, our compensation committee conducts a performance appraisal for each executive officer for the fiscal year, evaluates such executive’s performance during the fiscal year and evaluates our corporate performance during the fiscal year. Following such
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appraisal and evaluation, and taking into account our company’s financial condition, if the compensation committee determines that an executive warrants a bonus, it would recommend a bonus and a specified amount to our board of directors. The board of directors retains the authority, in its discretion, to award the bonus. During fiscal 2010, we did not award any bonuses to our executive officers.
Long-Term Equity Incentives
Long-term equity incentives represent the largest at-risk component of our executive and employee compensation program. Our long-term equity incentives are designed to align the interests of our executive officers and employees with those of our shareholders by creating an incentive for our executive officers and employees to maximize long-term shareholder value. Historically, we have granted stock options to newly-hired executive officers and employees when they commence employment with us.
The compensation committee approves all equity grants to our executive officers. Grants approved during scheduled meetings become effective and are priced as of the date of approval or a predetermined future date (for example, new hire grants are effective as of the later of the date of approval or the newly-hired executive’s start date). Grants approved by unanimous written consent become effective and are priced as of the date the last signature is obtained or as of predetermined future date. The compensation committee has not granted, nor does it intend to grant, equity compensation awards to executive officers or employees in anticipation of the release of material nonpublic information that is likely to result in changes to the price of our common stock, such as a significant positive or negative clinical trial result. Similarly, the compensation committee has not timed, nor does it intend in the future to time, the release of material nonpublic information based on equity award grant dates.
The compensation committee determines the number of stock options to award to a newly-hired executive officer using the same factors described above that are considered in determining the base salaries of newly-hired executive officers.
Employment Agreements
On January 10, 2008, we entered into an employment agreement with David W. Brown pursuant to which Mr. Brown was hired as our President and Chief Executive Officer. On December 15, 2009, we entered into an amendment agreement to that employment agreement. The term of the employment agreement, as amended, is through December 31, 2011. Set out below is a summary of the material terms of the employment agreement, as amended:
Base Salary
Base. From December 1, 2009 through December 31, 2010, Mr. Brown’s monthly salary is the primary fixed component1.5% of our executive compensation program. We use base salary to compensate executives for services rendered during the fiscal year, and to ensure that we remain competitive in attracting and retaining executive talent. Base salaries are generally set within a range of salaries paid to industry peers with comparable qualifications, experience, responsibilities and performance at similar companies.
For newly hired executives, the compensation committee determines base salary on a case-by-case basis by evaluating a number of factors, including the executive’s qualifications and experience, the competitive recruiting environment for his or her services, the executive’s anticipated role and responsibilities with the Company, the executive’s past compensation history, and comparisons to market data regarding compensation levels for comparable executives of other nutraceutical companies of similar sizes and stages of development.
For continuing executives, the compensation committee reviews base salaries annually as part of the Company’s performance review and appraisal process. Base salary increases, if any, are based primarily on each executive’s job performancetotal net sales for the prior year, as well as a review of competitive market data,month, subject to any minimum salary amount required by applicable state law. Under the executive’s compensation relative to other executive officers, the importance of the executive’s continued service with the Company and consider the cash constraints of the Company.
Performance-Based Bonuses
Our performance-based bonuses are designed to promote the interests of the Company and its shareholders by providing executive officers with the opportunity to earn bonuses based upon the achievement of pre-specified corporate and individual performance objectives, and to assist the Company in attracting and retaining executive talent. During fiscal 2009, the Company granted bonuses in the form of a holiday bonus as a method of rewarding employees and executive officers for their continued effort in meeting certain performance objectives and a bonus to the Chief Executive Officer in recognitionoriginal terms of his efforts to develop a significant new direction for the Company.
On an annual basis, the Chief Executive Officer evaluates the degree of achievement of the annual corporate and individual performance objectives, and submits his bonus recommendations to the compensation committee, which determines the final bonus amount, if any, for each executive officer. The compensation committee may determine to grant a bonus even though certain corporate or individual performance objectives are not met. If the compensation committee determines that corporate or individual performance for the year exceeded objectives oremployment agreement, Mr. Brown’s monthly salary was excellent in view of prevailing conditions, the compensation committee may approve corporate or individual performance multipliers. The compensation committee also retains the authority, in its discretion, to identify any unplanned achievements that have been accomplished and to approve adjustments to an executive officer’s bonus award. Bonuses, if any, are generally paid in January of each year for services rendered during the prior fiscal year.
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Long-Term Equity Incentives
Long-term equity incentives represent the largest at-risk component of our executive and employee compensation program. Our long-term equity incentives are designed to align the interests of our executive officers and employees with those of our shareholders by creating an incentive for our executive officers and employees to maximize long-term shareholder value. The equity compensation program is also designed to encourage our executive officers and employees to remain employed with us.
Historically, we have granted stock options to newly-hired executive officers and employees when they commence employment with us. We have also granted stock options to continuing executive officers once a year as part of our annual performance review and appraisal process. The annual stock options are granted as a reward for past individual and corporate performance and as an incentive for future performance. All stock options are granted with a 10-year term and an exercise price equal to or greater than 100% of the fair market value of our common stock on the date of grant. Prior to March 27, 2009, stock options granted by us generally vest over a three-year period, with one-sixth of the option vesting three months after the date of grant, and the remaining five-sixths of the option vesting in equal monthly installments thereafter over the remaining term, subject to the executive’s or employee’s continued employment with us through such vesting dates. Stock options granted by us beginning March 27, 2009 vest in full on the one-year anniversary of the grant subject to the executive’s or employee’s continued employment with us.
The compensation committee approves all equity grants to our executive officers. Grants approved during scheduled meetings become effective and are priced as of the date of approval or a predetermined future date (for example, new hire grants are effective as of the later of the date of approval or the newly-hired executive’s start date). Grants approved by unanimous written consent become effective and are priced as of the date the last signature is obtained or as of predetermined future date. The compensation committee has not granted, nor does it intend to grant, equity compensation awards to executive officers or employees in anticipation of the release of material nonpublic information that is likely to result in changes to the price of our common stock, such as a significant positive or negative clinical trial result. Similarly, the compensation committee has not timed, nor does it intend in the future to time, the release of material nonpublic information based on equity award grant dates. Also, because equity compensation awards vest over 1) a three-year period (with a 3 month “cliff” followed by monthly vesting thereafter) or 2) a one-year period (with a one-year cliff), the value to recipients of any immediate increase in the price of our common stock following a grant will be attenuated. Our Chief Executive Officer’s stock options are subject to vesting procedures different than those described above and are described in more detail below under the heading “ Employment, Severance and Change-in-Control Agreements.”
The compensation committee determines the number of stock options to award to a newly-hired executive officer using the same factors described above that are considered in determining the base salaries of newly-hired executive officers. The compensation committee determines the number of stock options to be awarded to continuing executives based on a variety of factors, including its review of competitive market data, its assessment of each executive officer’s individual performance$20,000 during those months. By no later than December 15, 2010, we and expected future contribution, a review of each executive’s existing equity incentive awards, and the importance of the executive’s continued service with the Company.
Severance and Change-in-Control Benefits
We enter into employment agreements with our executives in select cases, generally when it is necessary to secure the services of a newly hired executive. We have entered into an employment agreement with Mr. Brown, our Chief Executive Officer. The terms of such employment agreement, including the severance compensation payable thereunder, are described in more detail below.
On January 10, 2008, the Company entered into an Employment Agreement with David W. Brown pursuant to which Mr. Brown was hired as President and Chief Executive Officer of the Company. Unless sooner terminated pursuant to the terms of the Employment Agreement, the term of Mr. Brown’s employment as President and Chief Executive Officer of the Company will be from January 10, 2008 to December 31, 2010. Mr. Brown will be entitled to an annualagree on his compensation program for calendar year 2011; provided, however, Mr. Brown’s monthly base salary of $240,000 andfor calendar year 2011 will not be eligible to receive an annual bonus of up to 75% ofless than $20,000 per month, which was his monthly base salary based upon meeting certain operating and financial benchmarksprior to be established by the Company’s Board of Directors and compensation committee.amendment.
Stock Options. Upon hiring, we granted Mr. Brown will also be eligible to participate in the Company’s standard benefit plans.
In addition, Mr. Brown was granted options to purchase up to an aggregate of 1,800,000 shares of the Company’sour common stock. The stock options shall vest and become exercisable in the amounts and based upon the exercise prices as follows:Of such 1,800,000 shares: (i) 150,000 shares were fully vested upon grant and have an exercise price of $0.23 per share; (ii) 450,000 shares vest in monthly installments of 37,500 sharesvested from January 31, 2008 through December 31, 2008 and have an exercise price of $0.23 per share; and (iii) 300,000 shares with an exercise price of $0.30 per share were to vest if warrants to purchase our common stock were exercised on or before April 18, 2008. Of this latter 300,000 shares, 62,751 shares vested on April 18, 2008 and 237,249 shares terminated on April 18, 2008.
In addition, 450,000 shares of the original option grant were to vest in
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monthly installments of 37,500 shares from January 31, 2009 through December 31, 2009 and have an exercise price of $0.50 per share;share. The remaining 450,000 shares were to vest in monthly installments of 37,500 shares from January 31, 2010 through December 31, 2010 and have an exercise price of $0.75 per share;share. In connection with the amendment agreement to his employment agreement, we agreed that all of the stock options would cease vesting until such time as we have generated positive cash flow from operations for a period of three consecutive months. Upon achievement of such
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milestone, all of Mr. Brown’s option awards will resume vesting in accordance with their original vesting schedules and 300,000 shares thatany portion of such awards which did not vest as a result of the tolled vesting will become vested based upon warrantsand exercisable.
Bonus. Mr. Brown is eligible to purchasereceive a discretionary an annual bonus of up to 75% of his base salary. See “Compensation Elements—Bonuses,” above for a discussion of factors taken into account in determining whether to award a bonus.
Severance. If Mr. Brown resigns his employment for good reason or is terminated without substantial cause (as such terms are defined in the Company’s common stock being exercised on or before April 18, 2008 and haveemployment agreement), Mr. Brown will be eligible for severance in the amount of his annual base salary (at an exercise priceassumed rate of $0.30$20,000 per share (of which 62,751 shares vested on April 18, 2008 andmonth through December 31, 2010) plus the actual bonus (if any) paid to Mr. Brown for the previous year. Such severance amount is payable in equal installments over a period of which 237,249 shares terminated on April 18, 2008).24 months.
Non-Competition. During the term of his employment and for a period of six months thereafter, Mr. Brown has agreed not to, directly or indirectly, as an officer, director, employee, consultant, owner, shareholder, adviser, joint venturer, or otherwise, compete with Companyour company within the United States and all other countries in which the Company has,we have, as of the effective date of the termination of Mr. Brown’s employment, a registered patent and/or any active business activity in: (i) the antioxidant segment of the nutraceutical industry; or (ii) any other line of business in which Companyour company was engaged at any time during Mr. Brown’s employment with Company;us; or (iii) any other line of business into which Company,our company, during Mr. Brown’s employment with Company,us, formed an intention to enter into. This covenant will not prohibit Mr. Brown from owning less than two percent of the securities of any competitor of the Company, if such securities are publicly traded on a nationally recognized stock exchange or over-the-counter market. In addition, during this time, Mr. Brown has agreed not to solicit our employees of the Company or interfere with the Company’sour business relationships.
If Mr. Brown is terminated without Substantial Cause or resigns for Good Reason (each as defined in the Employment Agreement), then the Company will pay to Mr. Brown severance in the amount of (i) all compensation accrued and unpaid as of the date of termination or resignation, (ii) (a) if the termination or resignation occurs prior to the first anniversary of the date of the Employment Agreement, a cash payment equal to one year of his annual base salary as of the date of termination or resignation paid over a period of twenty-four months or (b) if the termination or resignation occurs on or after the first anniversary of the date of the Employment Agreement, a cash payment equal to one year of his annual base salary as of the date of termination or resignation paid over a period of twenty-four months and the actual annual bonus paid to Mr. Brown for the year before the year of termination or resignation, and (iii) the acceleration of the vesting of all unvested stock-based long term incentive compensation granted to Mr. Brown pursuant to the Employment Agreement.
If the Company notifies Mr. Brown that it will not renew the Employment Agreement following December 31, 2010 or any subsequent renewal term, and Mr. Brown resigns from the Company on or before the date that the Employment Agreement expires, then the Company will pay to Mr. Brown severance in the amount of (i) all compensation accrued and unpaid as of the date of resignation and (ii) a cash payment equal to six months of Mr. Browns annual base salary as of the date of resignation paid over a period of twelve months from the date of resignation.
If Mr. Brown is terminated with Substantial Cause or resigns without Good Reason, then he shall be entitled to all compensation accrued and unpaid as of the date of termination or resignation, but he shall not be entitled to any additional severance payments or acceleration of vesting upon such termination or resignation.
Perquisites
Perquisites and other personal benefits are not factored into our executive compensation program. We prefer to compensate executive officers using a mix of current, short- and long-term compensation with an emphasis on performance and do not believe that providing an executive perquisite program is consistent with our overall compensation philosophy. We typically provide perquisites and other personal benefits to executive officers on an exception-only basis, and they are generally limited to executive relocation assistance and temporary commuting and living expenses.
Other Benefits
We maintain health, dental and vision insurance plans for the benefit of all eligible employees, including our executive officers. Basic coverage under each of these benefit plans is paid by the Company and any premium in excess of the basic coverage is paid by the employee or executive. These benefits are offered on the same basis to all employees including our executive officers. We also maintain a 401(k) retirement savings plan that is available to eligible employees. Currently, the 401(k) retirement plan is not matched by the Company. Executives are eligible to participate in the 401(k) plan up to ERISA limits. No supplementary participation is available to executives or employees. Life, accidental death and dismemberment, short- and long-term disability insurance coverage, and wellness programs are also offered to eligible employees and basic premiums are paid in full by the Company. Other voluntary benefits, such as supplemental long-term disability insurance coverage, are also made available and paid for by the employees. The above benefits are available to our executive officers on the same basis as all other eligible employees.
22-27-
Summary Compensation Table
The following table shows for the fiscal years ended June 30, 2009, June 30, 20082010 and June 30, 2007,2009 the compensation awarded to, earned by or paid to or earned by, our Chief Executive Officer, any other person serving as our Chief Executive Officer during the last two fiscal years, our Chief Financial Officer, any other person serving as our former Chief Financial Officer during the last fiscal year, and our two other most highly compensated officers required by the rules of the SEC to be included thereinduring fiscal year 2010 (collectively, the “named executive officers”):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Option | | All other | | |
| | | | | | | Salary | | Bonus | | awards | | compensation | | Total |
| Name and principal position | | Year | | ($) | �� | ($) | | ($)(1) | | ($) | | ($) |
David W. Brown,
Chief Executive Officer (2) | | | 2009 | | | | 240,000 | | | | 16,500 | | | | 132,087 | | | | — | | | | 388,587 | |
| | | 2008 | | | | 111,846 | | | | — | | | | 67,432 | | | | — | | | | 179,278 | |
| | | 2007 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Carrie E. Carlander,
Chief Financial Officer (5) | | | 2009 | | | | 556 | | | | — | | | | — | | | | — | | | | 556 | |
| | | 2008 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | 2007 | | | | — | | | | — | | | | — | | | | — | | | | — | |
James J. Krejci,
Former Chief Executive Officer (4) | | | 2009 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | 2008 | | | | 37,947 | | | | — | | | | 17,360 | | | | — | | | | 55,307 | |
| | | 2007 | | | | 97,481 | | | | — | | | | 159,322 | | | | — | | | | 256,803 | |
Kirby L. Zenger,
Chief Operating Officer (6) | | | 2009 | | | | 78,444 | | | | — | | | | 34,781 | | | | — | | | | 113,225 | |
| | | 2008 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | 2007 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Bradford K. Amman,
Former Chief Financial Officer (3) | | | 2009 | | | | 140,208 | | | | 1,500 | | | | 58,053 | | | | — | | | | 199,761 | |
| | | 2008 | | | | 130,160 | | | | — | | | | 33,995 | | | | 8,013 | | | | 172,168 | |
| | | 2007 | | | | 133,583 | | | | 4,000 | | | | 20,588 | | | | — | | | | 158,171 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Summary Compensation Table for Fiscal Year 2010 | |
| | | | | | | | | | | | | | | | | All other | | | | |
| | | | | Salary | | | Bonus | | | Option awards | | | compensation | | | Total | |
| Name and principal position | | Year | | ($) | | | ($) | | | ($)(1) | | | ($) | | | ($) | |
| David W. Brown, | | 2010 | | | 222,341 | | | | — | | | | 194,150 | | | | — | | | | 416,491 | |
| Chief Executive Officer (2) | | 2009 | | | 240,000 | | | | 31,500 | | | | 132,087 | | | | — | | | | 388,587 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Carrie E. Carlander, | | 2010 | | | 200,000 | | | | — | | | | 197,985 | | | | — | | | | 397,985 | |
| Chief Financial Officer (3) | | 2009 | | | 556 | | | | — | | | | — | | | | — | | | | 556 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Kirby L. Zenger, | | 2010 | | | 215,000 | | | | — | | | | 109,159 | | | | — | | | | 324,159 | |
| Chief Operating Officer (4) | | 2009 | | | 78,444 | | | | — | | | | 34,781 | | | | — | | | | 113,225 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Bradford K. Amman, | | 2010 | | | 133,845 | | | | — | | | | 76,596 | | | | — | | | | 210,441 | |
| Former Chief Financial Officer (5) | | 2009 | | | 140,208 | | | | 1,500 | | | | 58,053 | | | | — | | | | 199,761 | |
| | |
| 1. | | The amounts shown in this column represent the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year for stock options granted to the named executive officers, as determined in accordance with SFAS 123(R). Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information on the valuation assumptions used to calculate these amounts, see Notes 2 and 7 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2009.2010. These amounts reflect the Company’s accounting expense for these awards, and do not correspond to the actual value that will be recognized by the named executive officers. |
| |
| 2. | | Mr. Brown was hired as President and Chief Executive Officer on January 10, 2008 and on January 10, 2008,2008. Mr. Brown was granted options to purchase up to 1,800,000 shares of the Company’s common stock at various prices from $0.23 to $0.75 per share. The option awardSee “—Employment Agreements,” above, for the terms of these options. Mr. Brown was calculated using the Black Scholes method pursuant to SFAS 123(R).awarded a bonus of $31,500 in 2009, $16,500 of which was paid during fiscal 2009 and $15,000 of which was paid during fiscal 2010. |
| |
| 3. | | Mr. Amman was granted an option to purchase 120,000 shares of the Company’s common stock on September 26, 2006 at an exercise price of $0.76. On January 16, 2007, Mr. Amman was granted an option to purchase 26,571 shares at $0.49 per share, on February 21, 2008 Mr. Amman was granted an option to purchase 120,000 shares at $0.35 per share and on March 27, 2009 Mr. Amman was granted an option to purchase an additional 120,000 shares at $0.70 per share. The option awards were calculated using the Black-Scholes method pursuant to SFAS 123(R). |
|
4. | | Mr. Krejci, who became the Company’s Chief Executive Officer beginning on December 21, 2006, left the Company on August 31, 2007, and as a consequence the stock option granted to Mr. Krejci terminated. |
|
5. | | Ms. Carlander joined the Companywas hired as Chief Financial Officer on June 9, 2009 at a base annual salary of $200,000.2009. On July 31, 2009, sheMs. Carlander was granted an option for theto purchase ofup to 500,000 shares of common stock exercisable at $0.54 per share and vesting in full on July 31, 2010. |
| |
6.4. | | Mr. Zenger joined the Company on February 2009 and becamewas appointed Chief Operating Officer on June 9, 2009 at a base annual salary of $215,000.2009. On March 27, 2009, heMr. Zenger was granted an option for theto purchase ofup to 150,000 shares of common stock exercisable at $0.70 per share and vesting in full on March 27, 2010 and on2010. On July 31, 2009, he was granted an additional option for theto purchase ofup to 100,000 shares of common stock exercisable at $0.54 per share and vesting in full on July 31, 2010. |
23
Grants of Plan-Based Awards
The following table sets forth certain information regarding grants of plan-based awards to the named executive officers during the fiscal year ended June 30, 2009:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | All Other | | | | | | |
| | | | | | | | | | | | | | | | | | | All Other | | Option | | | | | | Grant |
| | | | | | | | | | | | | | | | | | | Stock Awards: | | Awards: | | Exercise | | Date Fair |
| | | | | | | Estimated Possible Payouts | | Number | | Number of | | or Base | | Value of |
| | | | | | | Under Non-Equity Incentive | | of Shares | | Securities | | Price of | | Stock and |
| | | | | | | Plan Awards(1) | | of Stock | | Underlying | | Option | | Option |
| | | | | | | Threshold | | Target | | Maximum | | or Units | | Options | | Awards | | Awards |
| Name | | Grant Date | | ($) | | ($) | | ($) | | (#) | | (#)(2) | | ($/Sh)(3) | | ($)(4) |
| David W. Brown | | | 3/27/09 | | | | — | | | | — | | | | — | | | | — | | | | 300,000 | | | | 0.70 | | | | 208,686 | |
| Carrie E. Carlander (5) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Kirby L. Zenger (6) | | | 3/27/09 | | | | — | | | | — | | | | — | | | | — | | | | 150,000 | | | | 0.70 | | | | 104,343 | |
| Bradford K. Amman | | | 3/27/09 | | | | — | | | | — | | | | — | | | | — | | | | 120,000 | | | | 0.70 | | | | 83,474 | |
| | |
1. | | These columns show the possible threshold, target and maximum cash bonus payments to the named executive officers for the year ended June 30, 2009 under the Company’s performance-based cash bonus program, which is described in more detail in the Compensation Discussion and Analysis beginning on page 19 of this Proxy Statement. The actual cash bonus awards earned by the named executive officers for the year ended June 30, 2009 are set forth in the Summary Compensation Table above under the column entitled “Non-Equity Incentive Plan Compensation,” and the amounts set forth in these columns do not represent additional compensation paid to or earned by the named executive officers for the year ended June 30, 2009. |
|
2. | | This column shows the number of shares of common stock underlying stock options granted to the named executive officers during the year ended June 30, 2009. Stock options have a 10-year term and vest after one-year on March 27, 2010, subject to the recipient’s continued employment with the Company through such vesting date. |
|
3. | | This column shows the exercise price for the stock options granted to the named executive officers during the year ended June 30, 2009, which equals the fair market value of the Company’s common stock on the date of grant. |
|
4. | | This column shows the full grant date fair value of the restricted stock awards and stock options granted to the named executive officers during the year ended June 30, 2009, as determined in accordance with SFAS 123(R). The full grant date fair value is the amount that the Company recognizes as stock-based compensation expense in its financial statements over the required service period of the award. For additional information, see Notes 2 and 7 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2009. |
|
5. | | Ms. Carlander joined the Company as Chief Financial Officer on June 9, 2009 and on July 31, 2009 she was granted an option for the purchase of 500,000 shares of common stock exercisable at $0.54 per share and vesting in full on July 31, 2010. |
| |
6.5. | | Mr. ZengerAmman joined the Company on February 2009June 16, 2006 and became Chief Operating Officerleft the Company on June 9,December 31, 2009. Mr. Amman was granted an option to purchase 120,000 shares of common stock on September 26, 2006 exercisable at $0.76 per share. On July 31, 2009 heJanuary 16, 2007, Mr. Amman was granted an additional option for theto purchase of 100,00026,571 shares of common stock exercisable at $0.54$0.49 per share and vesting in full on July 31, 2010.share. On February 21, 2008, Mr. Amman was granted an additional option to purchase 120,000 shares exercisable at $0.35 per share. On March 27, 2009, Mr. Amman was granted an additional option to purchase an additional 120,000 shares exercisable at $0.70 per share. |
24-28-
Outstanding Equity Awards at Fiscal Year End
The following table sets forth certain information regarding equity awards granted to the named executive officers that were outstanding as of June 30, 2010:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding Equity Awards at Fiscal Year-End for Fiscal Year 2010 | |
| | | Option awards | | | Stock awards | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity | | | | |
| | | | | | | | | | | Equity | | | | | | | | | | | | | | | | | | | Incentive | | | | |
| | | | | | | | | | | Incentive | | | | | | | | | | | | | | | | | | | plan | | | | |
| | | | | | | | | | | plan | | | | | | | | | | | | | | | | | | | awards: | | | | |
| | | | | | | Number of | | | awards: | | | | | | | | | | | | | | | Market | | | Number of | | | | |
| | | Number of | | | securities | | | Number of | | | | | | | | | | | Number of | | | value of | | | unearned | | | | |
| | | securities | | | underlying | | | securities | | | | | | | | | | | shares or | | | shares of | | | shares, units | | | Equity Incentive | |
| | | underlying | | | unexercised | | | underlying | | | | | | | | | | | units of | | | units of | | | or other | | | plan awards: Market or | |
| | | unexercised | | | options | | | unexercised | | | Option | | | | | | | stock that | | | stock that | | | rights that | | | payout value of unearned | |
| | | options | | | (#) | | | unearned | | | exercise | | | | | | | have not | | | have not | | | have not | | | shares, units or others rights | |
| | | (#) | | | unexercis- | | | options | | | price | | | Option expiration | | | vested | | | vested | | | vested | | | that have not vested | |
| Name | | exercisable | | | able | | | (#) | | | ($) | | | date | | | (#) | | | ($) | | | (#) | | | ($) | |
| David W. Brown | | | 600,000 | | | | — | | | | — | | | $ | 0.23 | | | | 01/10/18 | (1) | | | — | | | | — | | | | — | | | | — | |
| | | | 412,500 | | | | — | | | | 37,500 | | | $ | 0.50 | | | | 01/10/18 | (2) | | | — | | | | — | | | | — | | | | — | |
| | | | — | | | | — | | | | 450,000 | | | $ | 0.75 | | | | 01/10/18 | (3) | | | — | | | | — | | | | — | | | | — | |
| | | | 62,751 | | | | — | | | | — | | | $ | 0.30 | | | | 01/10/18 | (4) | | | — | | | | — | | | | — | | | | — | |
| | | | — | | | | — | | | | 300,000 | | | $ | 0.70 | | | | 03/27/19 | (5) | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Carrie E. Carlander | | | — | | | | 500,000 | | | | — | | | $ | 0.54 | | | | 07/31/2019 | (6) | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Kirby L. Zenger | | | 150,000 | | | | — | | | | — | | | $ | 0.70 | | | | 3/27/2019 | (7) | | | — | | | | — | | | | — | | | | — | |
| | | | — | | | | 100,000 | | | | — | | | $ | 0.54 | | | | 07/31/2019 | (8) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bradford K. Amman | | | 120,000 | | | | — | | | | | | | $ | 0.76 | | | | 09/26/16 | (9) | | | — | | | | — | | | | — | | | | — | |
| | | | 28,571 | | | | — | | | | — | | | $ | 0.49 | | | | 01/16/17 | (10) | | | — | | | | — | | | | — | | | | — | |
| | | | 73,333 | | | | — | | | | — | | | $ | 0.35 | | | | 02/21/18 | (11) | | | | | | | | | | | | | | | | |
| | | | 120,000 | | | | — | | | | — | | | $ | 0.70 | | | | 03/27/19 | (12) | | | — | | | | — | | | | — | | | | — | |
| | |
| (1) | | This option was granted in January 2008. The shares subject to this option vested as follows: 150,000 shares vested upon grant and 37,500 shares vested each month over a 12-month period. This option fully vested in December 2008. |
|
| (2) | | This option was granted in January 2008. The original terms of this option provided that the shares subject to this option would vest in equal installments over a 12-month period commencing in January 2009. In December 2009, at which time 412,500 shares subject to this option were vested, the terms of this option were amended to provide that the shares subject to this option that had not vested would not vest until such time as our company met certain financial performance targets and at which time the shares subject to this option would vest. |
|
| (3) | | This option was granted in January 2008. The original terms of this option provided that the shares subject to this option would vest in equal installments over a 12-month period commencing in January 2010. In December 2009, the terms of this option were amended to provide that the shares subject to this option would cease vesting until such time as our company met certain financial performance targets and that at the time such targets were met, the shares subject to this option would vest in accordance with the original vesting schedule as if vesting had not ceased. |
|
| (4) | | This option was granted in January 2008 and all shares subject to this option vested in April 2008. |
|
| (5) | | This option was granted in March 2009. The original terms of this option provided that all of the shares subject to this option would vest on the one-year anniversary of the date of grant. In December 2009, the terms of this option were amended to provide that the shares subject to this option would not vest on the one-year anniversary of the date of grant but instead all such shares would vest at such time as our company met certain financial performance targets. |
|
| (6) | | This option was granted in July 2009 and all shares subject to this option vested on the one-year anniversary of the date of grant. |
|
| (7) | | This option was granted in March 2009 and all shares subject to this option vested on the one-year anniversary of the date of grant. |
|
| (8) | | This option was granted in July 2009 and all shares subject to this option vested on the one-year anniversary of the date of grant. |
|
| (9) | | This option was granted in September 2006 and the shares subject to this option vested monthly over a 12-month period commencing on the date of grant. |
|
| (10) | | This option was granted in January 2007 and the shares subject to this option vested monthly over a 12-month period commencing on the date of grant. |
|
| (11) | | This option was granted in February 2008 and the shares subject to this option vested monthly over a 12-month period commencing on the date of grant through the date of termination of employment. The shares subject to this option that did not vest as of the date of termination of employment were forfeited. |
|
| (12) | | This option was granted in March 2009 and all shares subject to this option were to vest on the one-year anniversary of the date of grant. In connection with his termination of employment, the vesting of all options were accelerated. |
-29-
Director Compensation
We compensate non-employee directors with cash compensation of $1,000 per meeting and reimburse our non-employee directors for documented business and travel-related expenses directly related to our company’s business. We do not provide any compensation to employee directors for their service on our board of directors.
The following table shows certain information with respect to the compensation of all non-employee directors of the Company for the fiscal year ended June 30, 2010:
| | | | | | | |
| Director Compensation for Fiscal 2010 |
| Name | | Option awards ($)(1) | | Fees earned or paid in cash (4) | | Total ($) |
Dr. James D. Crapo(2) | | 33,078 | | 5,000 | | 38,078 |
Dr. Joe M. McCord(3) | | 47,804 | | 7,000 | | 54,804 |
Mr. Richard Doutre’ Jones (4) | | 33,078 | | 7,000 | | 40,078 |
Mr. Garry Mauro(5) | | 33,078 | | 7,000 | | 40,078 |
Mr. Douglas Robinson(6) | | 19,689 | | 3,000 | | 22,689 |
Mr. Mike Lu(7) | | 19,689 | | 3,000 | | 22,689 |
Ms. Kay Stout Manovich(8) | | 19,689 | | 3,000 | | 22,689 |
Mr. Jack R. Thompson(9) | | 33,075 | | 10,000 | | 43,075 |
| | |
| 1. | | The amounts shown in this column represent the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year for stock options granted to the non-employee directors, as determined in accordance with SFAS 123R. Each director was granted an option to purchase 120,000 shares of our common stock during fiscal 2010. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information on the valuation assumptions used to calculate these amounts, see Notes 2 and 7 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2010. These amounts reflect the Company’s accounting expense for these awards, and do not correspond to the actual value that will be recognized by the non-employee directors. The options granted to our directors were made pursuant to our 2007 Long-Term Incentive Plan. |
|
| 2. | | Total number of shares subject to stock options at June 30, 2010: 480,000. |
|
| 3. | | Total number of shares subject to stock options at June 30, 2010: 620,408. |
|
| 4. | | Total number of shares subject to stock options at June 30, 2010: 340,000. |
|
| 5. | | Total number of shares subject to stock options at June 30, 2010: 340,000. |
|
| 6. | | Total number of shares subject to stock options at June 30, 2010: 120,000. |
|
| 7. | | Total number of shares subject to stock options at June 30, 2010: 120,000. |
|
| 8. | | Total number of shares subject to stock options at June 30, 2010: 120,000. |
|
| 9. | | Total number of shares subject to stock options at June 30, 2010: 260,000. Mr. Thompson resigned from our board of directors effective as of September 14, 2010. |
-30-
AUDIT RELATED MATTERS
Audit Committee Report
Management is responsible for the financial reporting process, including the system of internal controls, for the preparation of consolidated financial statements in accordance with generally accepted accounting principles. Ehrhardt Keefe Steiner & Hottman PC, our independent registered public accounting firm, is responsible for auditing our financial statements and expressing an opinion as to their conformity with generally accepted accounting principles.
The audit committee has held discussions with management and the independent registered public accounting firm. Management represented to the audit committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the audit committee has reviewed and discussed the consolidated financial statements with management and the Company’s independent registered public accounting firm. The audit committee received the written disclosures and letter required by the Independence Standards board of directors Standard No. 1 (Independence Discussions with Audit Committees) and discussed the independence of the Company’s independent registered public accounting firm with the firm. In addition, the committee has discussed with the Company’s independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (Codification of Statements on Auditing Standards, AU §380).
The audit committee has also considered whether the provision of non-audit services to the Company is compatible with maintaining the independent registered public accounting firm’s independence. The audit committee has concluded that the independent registered public accounting firm is independent the Company and its management. The audit committee has reviewed with the Company’s independent registered public accounting firm the overall scope and plans for its audit.
Relying on the foregoing reviews and discussions, the audit committee recommended to the board of directors the inclusion of the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2010, for filing with the SEC.
The Audit Committee
James D. Crapo, Chairman
Garry Mauro
Douglas C. Robinson
The preceding “Audit Committee Report” shall not be deemed soliciting material or filed with the SEC, nor shall any information in this report be incorporated by reference into any past or future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent the Company specifically incorporates it by reference into such filing.
-31-
Principal Accountant Fees and Services
The following table presents fees for professional audit services rendered by Ehrhardt Keefe Steiner & Hottman PC during the fiscal years ended June 30, 2010 and 2009:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Option awards | | Stock awards |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | incentive | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | plan | | |
| | | | | | | | | | | Equity | | | | | | | | | | | | | | | | | | awards: | | Equity Incentive |
| | | | | | | | | | | incentive | | | | | | | | | | Number | | Market | | Number of | | plan awards: |
| | | Number of | | | | | | plan awards: | | | | | | | | | | of shares | | value of shares of | | unearned | | Market or payout |
| | | securities | | Number of | | Number of | | | | | | | | | | or units | | units of | | shares, | | value of unearned |
| | | underlying | | securities | | securities | | | | | | | | | | of stock | | stock | | units or | | shares, units |
| | | unexercised | | underlying | | underlying | | | | | | | | | | that | | that have | | other rights | | or others rights |
| | | options | | unexercised | | unexercised unearned | | Option | | | | | | have not | | not | | that have | | that have not |
| | | (#) | | options | | options | | exercise price | | Option expiration | | vested | | vested | | not vested | | vested |
| Name | | exercisable | | (#) unexercisable | | (#) | | ($) | | date | | (#) | | ($) | | (#) | | ($) |
| David W. Brown | | | 600,000 | | | | — | | | | — | | | $ | 0.23 | | | | 01/10/18 | | | | — | | | | — | | | | — | | | | — | |
| | | | 225,000 | | | | — | | | | 225,000 | | | $ | 0.50 | | | | 01/10/18 | | | | — | | | | — | | | | — | | | | — | |
| | | | — | | | | — | | | | 450,000 | | | $ | 0.75 | | | | 01/10/18 | | | | — | | | | — | | | | — | | | | — | |
| | | | 62,751 | | | | 237,249 | | | | — | | | $ | 0.30 | | | | 01/10/18 | | | | — | | | | — | | | | — | | | | — | |
| | | | — | | | | — | | | | 300,000 | | | $ | 0.70 | | | | 03/27/19 | | | | — | | | | — | | | | — | | | | — | |
| Carrie E. Carlander | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Kirby L. Zenger | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Bradford K. Amman | | | 110,000 | | | | — | | | | 10,000 | | | $ | 0.76 | | | | 09/26/16 | | | | — | | | | — | | | | — | | | | — | |
| | | | 28,571 | | | | — | | | | — | | | $ | 0.49 | | | | 01/16/17 | | | | — | | | | — | | | | — | | | | — | |
| | | | 53,333 | | | | — | | | | 66,667 | | | $ | 0 .35 | | | | 02/21/18 | | | | | | | | | | | | | | | | | |
| | | | — | | | | — | | | | 120,000 | | | $ | 0 .70 | | | | 03/27/19 | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | |
| | | Fiscal Year Ended | |
| | | 2010 | | | 2009 | |
| Audit Fees | | $ | 65,000 | | | $ | 53,000 | |
| Audit-Related Fees (1) | | $ | 43,000 | | | $ | 34,800 | |
| Tax Fees (2) | | $ | 9,700 | | | $ | 8,496 | |
| All Other Fees (3) | | $ | 9,059 | | | $ | 3,500 | |
| Total Fees | | $ | 126,759 | | | $ | 99,796 | |
| | |
| (1) | | Audit-Related fees for the fiscal year ended June 30, 2009 related to assurance and other services related to performance of the audit and review of interim reports. |
|
| (2) | | Tax Fees are for tax compliance, advice and planning. |
|
| (3) | | All Other Fees are related to our convertible debt offering, 404(b) compliance and other professional services. |
Pre-Approval Policies and Procedures
The audit committee has adopted policies and procedures for the pre-approval of audit and non-audit services rendered by our independent registered public accounting firm. The policies require pre-approval of all auditing and such non-auditing services as our independent registered public accounting firm is permitted to provide, subject tode minimusexceptions for services other than audit, review, or attest services that are approved by the audit committee prior to completion of the audit. All of the items identified under “Audit-Related Fees”, “Tax Fees” and “All Other Fees” above were approved by the audit committee. Alternatively, the engagement of our independent registered public accounting firm may be entered into pursuant to pre-approved policies and procedures that our audit committee may establish, so long as these policies and procedures are detailed as to particular services and the audit committee is informed of each service. In making these determinations, the audit committee will consider whether the services provided are compatible with maintaining the independence of the independent registered public accounting firm. We are prohibited by applicable law from obtaining certain non-audit services from our independent registered public accounting firm and, in that event, we would obtain these non-audit services from other providers.
Our audit committee has considered whether the provision of non-audit services is compatible with maintaining the independence of our independent registered public accounting firm and determined that it is consistent with such independence.
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Option Exercises And Stock VestedSECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding option exercisesthe ownership of our common stock as of September 1, 2010 by: (i) each director and nominee for director; (ii) each of our named executive officers; (iii) all of our executive officers and directors as a group; and (iv) each person who is known to us to own beneficially more than five percent of our common stock. The shares disclosed in this table are based upon information supplied by officers, directors and principal shareholders and filings made by such parties with the SEC.
Except as otherwise noted, the address for each person listed below is c/o LifeVantage Corporation, 11545 W. Bernardo Court, Suite 301, San Diego, California 92127.
The percentages of beneficial ownership set forth below are based on 69,065,723 shares of restrictedour common stock that vested during the year ended June 30, 2009 with respect to the named executive officers:issued and outstanding as of September 21, 2010.
| | | | | | | | | |
| Beneficial Owner (1) | | Number of Shares | | | Percent of Class | |
| |
| Dr. James D. Crapo | | | 1,222,375 | (2) | | | 1.75 | % |
| Richard Doutre’ Jones | | | 420,000 | (3) | | | * | |
| C. Mike Lu | | | 4,668,935 | (4) | | | 6.38 | % |
| Kay Stout Manovich | | | 435,537 | (5) | | | * | |
| Garry P. Mauro | | | 520,000 | (6) | | | * | |
| Dr. Joe M. McCord | | | 2,669,333 | (7) | | | 3.81 | % |
| Douglas C. Robinson | | | 90,000 | (8) | | | * | |
| David W. Brown | | | 1,275,251 | (9) | | | 1.82 | % |
| Carrie E. Carlander | | | 500,000 | (10) | | | * | |
| Kirby Zenger | | | 250,000 | (11) | | | * | |
| All executive officers and directors as a group (10 persons) | | | 12,051,431 | | | | 15.52 | % |
| | |
| * | | Less than one percent. | | | | | | | | | | | | | |
| |
| 1 | | Option Awards | | Stock AwardsThe shares of our common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares voting power, which includes the power to vote or direct the voting of such security, or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Securities that can be so acquired are deemed to be outstanding for purposes of computing such person’s ownership percentage, but not for purposes of computing any other person’s percentage. Under these rules, more than one person may be deemed beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. This table is based upon information supplied by officers, directors and principal shareholders and Schedules 13D and 13G filed with the SEC. Except as otherwise indicated in these footnotes and subject to community property laws where applicable, each of the beneficial owners has, to our knowledge, sole voting and investment power with respect to the indicated shares of common stock. In accordance with the beneficial ownership rules of the SEC, the table does not reflect an aggregate of 1,307,500 shares of common stock reserved for issuance upon the exercise of outstanding options not exercisable within 60 days held by certain of our directors and executive officers. |
| |
| Number of Shares2 | | Value Realized | | NumberIncludes 125,000 shares owned by Dr. Crapo and his wife as tenants in common, 450,000 shares held in Dr. Crapo’s Individual Retirement Account and 50,000 shares owned directly by Dr. Crapo, 112,500 shares underlying warrants at an exercise price of Shares | | Value Realized |
| | Acquired on Exercise | | on Exercise | | Acquired on Vesting | | on Vesting |
Name | | (#) | | ($) | | (#) | | ($) |
David W. Brown | | | — | | | | — | | | | — | | | | — | |
Carrie E. Carlander | | | — | | | | — | | | | — | | | | — | |
Kirby L. Zenger | | | — | | | | — | | | | — | | | | — | |
Bradford K. Amman | | | — | | | | — | | | | — | | | | — | $0.50 per share. Also includes shares which Dr. Crapo has the right to acquire or will have the right to acquire within 60 days of September 1, 2010 pursuant to an option to purchase 120,000 shares at an exercise price of $0.49 per share and options to purchase 240,000 shares at an exercise price of $0.21, and, pursuant to a convertible debenture totaling $24,975.00, 124,875 shares with a conversion price of $0.20 |
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CODE OF ETHICS
We have adopted the LifevantageLifeVantage Corporation Code of Ethics which applies to our Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, the Boardmembers of Directorsour board of directors and all employees. The Code of Ethics is available on our website atwww.lifevantage.com. The Code of Ethics addresses matters including: (1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (2) full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submits to, the SEC and in other public communications we make; and (3) compliance with laws, rules and regulations applicable to us. The Board of Directors may grant waivers of provisionsA copy of the Code of Ethics.Ethics is available on our website at www.lifevantage.com. Any amendments to, or waivers from, a provision of our Code of Ethics that shall be disclosed by posting such information on our website atwww.lifevantage.com. www.lifevantage.com. Our website does not constitute part of this proxy statement.
We have also adopted the LifevantageLifeVantage Corporation Code of Business Conduct and Ethics that applies to all officers, directors and employees. Among other matters, the Code of Business Conductthis code addresses: compliance with laws, rules, and regulations; conflicts of interest; corporate opportunities; competition and fair dealing; discrimination; health and safety; confidentiality; protection of our assets; and payments to governmental personnel.
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SECTION 16(A)16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers, and persons who own more than ten percent10% of our common stock to report their ownership of theour common stock and any changes in that ownership to the Securities and Exchange Commission.SEC. The Securities and Exchange CommissionSEC has established specific due dates for these reports, and we are required to report in this proxy statement any failure to file by thesethe specific due dates. To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended June 30, 2009,2010, we believe that all such reports were filed on a timely basis except that one Form 3 was inadvertently filed late for each of the Company’s COO, Mr. Zenger and the Company’s CFO, Ms. Carlander. In addition, one Form 4 was inadvertently filed late for each of the following members of the Company’s board of directors: Dr. Crapo, Mr. Thompson, Dr. McCord, Mr. Doutré Jones, Mr. Mauro, and Mr. Brown, the Company’s CEO, and one Form 4 was inadvertently filed late for the Company’s former CFO, Mr. Amman.basis.
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PROPOSAL 2 — RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The audit committee of our Board of Directors has selected Ehrhardt Keefe Steiner & Hottman PC as the Company’s independent auditors for the fiscal year ending June 30, 2010 and has further directed that management submit the selection of independent auditors for ratification by the shareholders at the Annual Meeting. Representatives of Ehrhardt Keefe Steiner & Hottman PC are expected to be present at the annual meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.
Neither the Company’s Bylaws nor other governing documents or law require shareholder ratification of the selection of Ehrhardt Keefe Steiner & Hottman PC as our independent auditors. However, the audit committee is submitting the selection of Ehrhardt Keefe Steiner & Hottman PC to the shareholders for ratification as a matter of good corporate governance. If the shareholders fail to ratify the selection, the audit committee will review its future selection of independent auditors. Even if the selection is ratified, the audit committee in its discretion may direct the appointment of different independent auditors at any time during the year if they determine that such a change would be in the best interests of the Company and our shareholders.
The affirmative vote of the holders of a majority of the outstanding shares of common stock will be required to ratify the selection of Ehrhardt Keefe Steiner & Hottman PC. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the shareholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this matter has been approved.
Principal Accountant Fees and Services
The following table presents (1) fees for professional audit services rendered beginning January 30, 2008 by Ehrhardt Keefe Steiner & Hottman PC, the Company’s principal accountants, for the audit of our annual financial statements for the fiscal years ended June 30, 2009 and 2008, and fees billed for other services during those periods, and (2) fees for professional audit services rendered prior to January 30, 2008 by Gordon, Hughes & Banks, LLP, the Company’s principal accountant through January 30, 2008, for the review of our interim financial statements and fees billed for other services through January 30, 2008:
| | | | | | | | | |
| | | Fiscal Year Ended |
| | | 2009 | | 2008 |
| Audit Fees | | $ | 53,000 | | | $ | 45,500 | |
| Audit-related Fees (1) | | | 34,800 | | | | 26,000 | |
| Tax Fees (2) | | | 8,496 | | | | 8,164 | |
| Other Fees (3) | | | 3,500 | | | | — | |
| | | |
| Total Fees | | $ | 99,796 | | | $ | 79,664 | |
| | |
(1) | | Audit-related fees of $34,800 and $26,000 in fiscal years ended June 30, 2009 and 2008 related to assurance and other services related to performance of the audit and review of interim reports. |
|
(2) | | Tax fees of $8,496 and $8,164 in fiscal years ended June 30, 2009 and 2008 are for tax compliance, advice and planning. |
|
(3) | | Other fees are related to the Company’s Form S-8 filing. |
Pre-Approval Policies and Procedures
The audit committee has adopted policies and procedures for the pre-approval of audit and non-audit services rendered by our independent auditor, Ehrhardt Keefe Steiner & Hottman PC. The policies require pre-approval of all auditing and such non-auditing services as our independent auditor is permitted to provide, subject to de minimus exceptions for services other than audit, review, or attest services that are approved by the audit committee prior to completion of the audit. All of the items identified under “Audit-Related Fees”, “Tax Fees” and “All Other Fees” above were approved by the audit committee. Alternatively, the engagement of our independent auditor may be entered into pursuant to pre-approved policies and procedures that our audit committee may establish, so long as these policies and procedures are detailed as to particular services and the audit committee is informed of each service. In making these determinations, the audit committee will consider whether the services provided are compatible with maintaining our
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auditor’s independence. We are prohibited by applicable law from obtaining certain non-audit services from our independent auditor and, in that event, we would obtain these non-audit services from other providers.
The audit committee has determined that the rendering of the services other than audit services by Ehrhardt Keefe Steiner & Hottman PC is compatible with maintaining the principal accountant’s independence.
On January 30, 2008, the Company dismissed Gordon, Hughes & Banks, LLP as the Company’s independent registered public accounting firm. The Company appointed Ehrhardt, Keefe, Steiner & Hottman PC on January 30, 2008 as its independent registered public accounting firm beginning for the three months ended December 31, 2007. The decision to change accountants was recommended and approved by the Company’s Board of Directors and its Audit Committee on January 30, 2008.
Neither Gordon, Hughes & Banks, LLP’s audit report dated October 10, 2007 on the Company’s consolidated financial statements as of and for the year ended June 30, 2007, included in its Form 10-KSB filed October 12, 2007, nor Gordon, Hughes & Banks, LLP’s audit report dated August 15, 2006 and updated on November 28, 2006 on the Company’s consolidated financial statements as of and for the year ended June 30, 2006, included in its Form 10-KSB and amended Form 10-KSB/A filed September 28, 2006 and November 30, 2006 respectively, contained an adverse opinion or a disclaimer of opinion or was qualified or modified as to uncertainty, audit scope, or accounting principles.
In connection with the audits of the Company’s financial statements for the fiscal years ended June 30, 2008 and 2007 and in the subsequent interim period through January 30, 2008, the date of the dismissal of the former accountant, there were no disagreements with Gordon, Hughes & Banks, LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the satisfaction of Gordon, Hughes & Banks, LLP, would have caused Gordon, Hughes & Banks, LLP to make reference to the subject matter of the disagreement in connection with its report. During the years ended June 30, 2007 and 2006, and the subsequent interim period through January 30, 2008, Gordon, Hughes & Banks, LLP did not advise the Company of any reportable events as described in Item 304(a)(1)(iv)(B) of Regulation S-K. Gordon, Hughes & Banks, LLP’s letter to the SEC stating its agreement with the statements in this paragraph is filed as an exhibit to the Company’s Current Report on Form 8-K dated February 8, 2008.
The Company engaged Ehrhardt, Keefe, Steiner & Hottman PC as its independent registered public accounting firm for the fiscal year ending June 30, 2008. The Company did not consult with Ehrhardt, Keefe, Steiner & Hottman PC during its prior two most recent fiscal years or during any subsequent interim period prior to the appointment of Ehrhardt, Keefe, Steiner & Hottman PC as the Company’s independent registered public accounting firm regarding any matters described in Item 304(a)(2)(i) or Item 304(a)(2)(ii) of Regulation S-K.
Board Recommendation
Our Board of Directors recommends the shareholders vote FOR ratification of Ehrhardt, Keefe,
Steiner & Hottman PC as our independent auditors for the fiscal year ending June 30, 2010.
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PROPOSAL 3 — APPROVAL OF INCREASE TO THE SHARES RESERVED FOR ISSUANCE UNDER THE
COMPANY’S 2007 LONG-TERM INCENTIVE PLAN FROM 6 MILLION SHARES TO 10 MILLION SHARES
The purpose of the Company’s 2007 Long-Term Incentive Plan (“Plan” or “Incentive Plan”) is to advance the interests of the Company and our shareholders by providing incentives to certain of our employees and other key individuals who perform services for us, including independent distributors and others who contribute significantly to the strategic and long-term performance objectives and growth of the Company.
As of September 30, 2009, awards (net of canceled or expired awards) covering an aggregate of 8,619,730 shares of common stock had been granted under the Incentive Plan. The weighted average exercise price of all outstanding options as of June 30, 2009 was approximately $0.62 and the weighted average remaining term of such options was approximately 9.8 years. As of October 26, 2009, there were 56,967,412 shares of our common stock outstanding. On October 26, 2009, the last reported sale price of our common stock as quoted on the OTC Bulletin Board was $0.29 per share.
During the past year, the Company moved to a network marketing or multi-level marketing approach for distributing its products. As part of this transition, the Company acquired an entire team of experienced network marketing professionals and the supporting organization for the team. In order to motivate these new employees and distributors and to align their interests with those of shareholders, the Board would grant stock options to those individuals as part of their compensation. The use of stock option grants for this purpose significantly increased the number of shares that the Company needs to have available for grant under the Incentive Plan.
In March 2009, our board approved an amendment to the Incentive Plan, subject to shareholder approval, to increase the number of shares authorized for issuance under the Incentive Plan by an additional 4,000,000 shares to an aggregate total of 10,000,000 shares.
Our board adopted this amendment to ensure that we can continue to grant stock options and other stock awards under the Incentive Plan at levels determined appropriate by our board and compensation committee. We believe that our ability to continue to provide employees and other key individuals, including independent distributors, with attractive equity-based incentives is critical in allowing us to attract and retain qualified individuals. We believe the grant of stock options and other stock awards encourages employees and other key individuals to build long-term shareholder value.
Shareholders are requested in this Proposal 3 to approve an amendment to increase the share reserve under the Incentive Plan. The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the meeting will be required to approve the amendment to the Incentive Plan. Abstentions will be counted toward the tabulation of votes cast on the proposal and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this proposal has been approved.
Board Recommendation
Our Board of Directors recommends the shareholders vote FOR ratification of an increase to the shares approved for
issuance under the Company’s 2007 Long-Term Incentive Plan (“Plan”) from 6 million shares to 10 million shares.
2007 Long-Term Incentive Plan
The essential features of the Incentive Plan, as amended to reflect this proposal, are outlined below:
Share Reserve
Subject to approval by the shareholders of the proposed amendment to the Incentive Plan, an aggregate of 10,000,000 shares of common stock will be reserved for issuance under the Incentive Plan. Common stock issued under the Incentive Plan may be either newly issued shares, treasury shares, reacquired shares or any combination thereof. If common stock issued as restricted stock, restricted stock units or otherwise subject to repurchase or forfeiture rights is reacquired by us pursuant to such rights, or if any award
32
is canceled, terminates or expires unexercised, the common stock which would otherwise have been issuable pursuant to such awards will be available for issuance under new awards.
Administration
The Plan is administered by our board of directors or, if our board of directors so designates, by a committee of the board of directors. Our board of directors has designated the Compensation Committee (the “Committee”) to administer the Incentive Plan. The Committee may delegate administrative responsibilities if so permitted by applicable law, and only if Rule 16b-3 of the Securities Exchange Act of 1934 permits such appointment and the exercise of authority without adversely affecting the ability of awards to officers to comply with the conditions for Rule 16b-3 or Section 162(m) of the Internal Revenue Code of 1986, as amended.
The Committee has exclusive discretion to select those employees, independent distributors and other key individuals performing services for us to whom awards will be granted; to determine the type, size, terms and conditions of each award; to modify or waive within certain limits the terms and conditions of any award; to determine the time when awards will be granted; to establish performance objectives; to prescribe the form of documents representing awards under the Incentive Plan and to make all other determinations which it deems necessary or desirable in the interpretation and administration of the Incentive Plan. At the discretion of the Committee, awards may be made under the Incentive Plan in assumption of, or in substitution for, outstanding awards previously granted by the Company, any predecessor or a company acquired by the Company or with which it combines. The Committee has the authority to administer and interpret the Incentive Plan, and its decisions are final, conclusive and binding.
Awards Under the Incentive Plan
The Incentive Plan provides for the granting of several types of awards, including stock options, stock appreciation rights or SARs, restricted stock, restricted stock units, performance grants and other awards deemed by the Committee to be consistent with the purposes of the Incentive Plan. Awards may be granted alone, or in conjunction with one or more other awards, as determined by the Committee. Our board of directors believes that, by establishing various types of incentive awards, the Incentive Plan offers the Committee the flexibility to grant attractive awards to our employees and key individuals, including our independent distributors, that can be specifically designed in each particular circumstance to motivate these individuals and best align their interests with those of our shareholders.
Since the effective time of the Incentive Plan, options under the Incentive Plan have been granted in the following amounts to the following persons: David W. Brown, Chief Executive Officer: options to purchase 1,862,751 shares of common stock; Carrie E. Carlander, Chief Financial Officer: option to purchase 500,000 shares of common stock; Kirby L. Zenger, Chief Operating Officer: options to purchase 250,000 shares of common stock; Bradford K. Amman, Former Chief Financial Officer: options to purchase 388,571 shares of common stock; all current executive officers as a group: 2,612,751; all current non-employee directors as a group: 1,470,306; and all employees distributors and consultants including all current officers who are not executive officers, as a group: 4,536,673.
Stock Options. A stock option, which may be a nonqualified or an incentive stock option, is the right to purchase a specified number of shares of common stock at a price fixed by the Committee. The option exercise price for stock options may be equal to or greater than the fair market value of the common stock on the date of grant. In the case of incentive stock options granted to our employees or any affiliate who owns more than 10% of the voting power of all classes of our stock or stock of any affiliate, the option exercise price may not be less than 110% of fair market value on the date of the grant.
Stock options will generally expire not later than ten years or, in the case of incentive stock options granted to employees who own more than 10% of our stock, five years, after the date granted. Stock options become exercisable at such times and in such installments as the Committee determines. Payment of the option exercise price must be made in full at the time of exercise in cash, by tendering shares of common stock, by a combination thereof or by any other means that the Committee deems appropriate (including, without limitation, the surrender of rights in one or more outstanding awards).
Unless the Committee determines otherwise, (i) all outstanding stock options will vest and become exercisable immediately prior to a Change of Control, and (ii) any stock option that is not exercised in connection with the Change of Control will terminate upon the Change of Control.
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Under the Incentive Plan, a “Change of Control” is defined as (i) any merger, consolidation or business combination in which the shareholders of the Company immediately prior to the merger, consolidation or business combination do not own at least a majority of the outstanding equity interests of the surviving parent entity, (ii) the sale of all or substantially all of the Company’s assets, (iii) the acquisition of beneficial ownership or control of (including, without limitation, power to vote) a majority of the outstanding common shares by any person or entity (including a “group” as defined by or under Section 13(d)(3) of the Exchange Act), (iv) the dissolution or liquidation of the Company, (v) a contested election of directors, as a result of which or in connection with which the persons who were directors of the Company before such election or their nominees cease to constitute a majority of the board of directors, or (vi) any other event specified by the board of directors or the Committee.
Other Awards. The Incentive Plan also authorizes several other types of awards. These include stock appreciation rights (rights to receive, without payment, cash, common stock, other property or any combination thereof, based on the increase in the value of the number of shares of common stock specified in the award), restricted stock (an award of a number of shares of common stock that are subject to certain restrictions, such as a requirement that the shares shall be forfeited if the holder’s employment or performance of services for us terminates), restricted stock units (an award of the right to receive either shares of common stock or cash equal to the fair market value of a share of common stock, issued subject to certain restrictions such as a forfeiture requirement discussed above) and performance grants (cash, shares of common stock, other consideration such as other Company securities or property or a combination thereof that is paid based on the performance of the holder, the Company, one or more of our subsidiaries, divisions or units, or any combination).
Federal Income Tax Consequences
The following is a summary of the principal current federal income tax consequences of transactions under the Incentive Plan. This summary does not describe all federal tax consequences under the Incentive Plan, nor does it describe state, local or foreign tax consequences.
Incentive Stock Options.No taxable income is realized by the employee upon the grant or exercise of an incentive stock option. However, the exercise of an incentive stock option may result in alternative minimum tax liability for the employee. If the employee does not dispose of the shares received upon exercise of an incentive stock option within two years from the date of grant (or within one year after the transfer of such shares to the employee), then upon sale of such shares, any amount realized in excess of the exercise price will be taxed to the employee as a long-term capital gain and any loss sustained will be a long-term capital loss. In that case, no deduction will be allowed to the Company for federal income tax purposes.
If the shares of common stock acquired upon the exercise of an incentive stock option are disposed of prior to the expiration of the two-year and one-year holding periods described above, generally the employee will realize ordinary income in the year of disposition. The ordinary income will equal the amount of the excess (if any) of the fair market value of the shares at exercise (or, if less, the amount realized on an arm’s length sale of such shares) over the exercise price thereof, and we will be entitled to deduct such amount. Any further gain realized will be taxed as short-term or long-term capital gain and will not result in any deduction by the Company. Special rules may apply where all or a portion of the exercise price of the incentive stock option is paid by tendering shares of common stock.
If an incentive stock option is exercised at a time when it does not qualify for the tax treatment described above, the option is treated as a nonqualified stock option. Generally, an incentive stock option will not be eligible for the tax treatment described above if it is exercised more than three months following termination of employment (one year following termination of employment by reason of permanent and total disability), except in certain cases where the incentive stock option is exercised after the death of an employee.
Nonqualified Options.No income is realized by the employee at the time a nonqualified stock option is granted under the Incentive Plan. Generally, at exercise, ordinary income is realized by the employee in an amount equal to the difference between the option price and the fair market value of the shares on the date of exercise, and the Company receives a tax deduction for the same amount. At disposition, appreciation or depreciation after the date of exercise is treated as either short-term or long-term capital gain or loss, depending on how long the shares have been held.
Other Awards.The grant of a stock appreciation right does not result in income for the employee or in a deduction for the Company. Upon the exercise of an SAR, generally the employee recognizes ordinary income and the Company is entitled to a deduction measured by the fair market value of any amounts received by the employee.
An employee receiving restricted stock generally will be subject to tax at ordinary income rates on the fair market value of the stock at the time the stock is either transferable or is no longer subject to forfeiture, less any amount paid for such stock. The Company
34
is entitled to a corresponding tax deduction for the amount of ordinary income recognized by the employee. However, an employee who so elects under Section 83(b) of the Internal Revenue Code within 30 days of the date of issuance of the restricted stock will realize ordinary income on the date of issuance equal to the fair market value of the shares of restricted stock at that time (measured as if the shares were unrestricted and could be sold immediately), less any amount paid. If the shares subject to such election are forfeited, the employee will not be entitled to any deduction, refund or loss for tax purposes with respect to the forfeited shares (except with respect to any amounts paid for the shares). Upon sale of the shares after the forfeiture period has expired, the appreciation or depreciation since the shares became transferable or free from risk of forfeiture (or, if a Section 83(b) election was made, since the shares were issued) will be treated as long-term or short-term capital gain or loss. The holding period to determine whether the employee has long-term or short-term capital gain or loss begins when the restriction period expires (or upon earlier issuance of the shares, if the employee elected immediate recognition of income under Section 83(b)).
An employee receiving a performance award will generally be subject to tax at ordinary income rates on any cash received and on the fair market value of any common stock issued under the award, and the Company will generally be entitled to a deduction equal to the amount of ordinary income realized by the employee. The capital gain or loss holding period for any common stock distributed under a performance award will begin when the employee recognizes ordinary income relating to the award.
It is not possible to determine other specific amounts and types of awards that may be awarded in the future under the Incentive Plan because the grant of awards under the Incentive Plan is discretionary.
Securities Authorized for Issuance under Equity Compensation Plans
| | | | | | | | | | | | | |
| | | | | | | | | | | (c) Number of securities | |
| | | | | | | (b) Weighted- | | | remaining available for | |
| | | (a) Number of | | | average exercise | | | future issuance under | |
| | | securities to be issued | | | price of | | | equity compensation | |
| | | upon exercise of | | | outstanding | | | plans (excluding | |
| | | outstanding options, | | | options, warrants | | | securities reflected in | |
| Plan Category | | warrants and rights | | | and rights | | | column (a)) | |
| Equity compensation plans approved by security holders | | | 6,000,000 | | | $ | 0.45 | | | | — | |
| | | | | | | | | | | | | |
| Equity compensation plans not approved by security holders | | | 5,099,947 | | | $ | 0.64 | | | | — | |
| | | | | | | | | | |
| Total | | | 11,099,947 | | | $ | 0.54 | | | | — | |
| | | | | | | | | | |
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HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more shareholders sharing the same address by delivering a single proxy statement addressed to those shareholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for shareholders and cost savings for companies.
This year, a number of brokers with account holders who are LifevantageLifeVantage Corporation shareholders will be “householding” our proxy materials. A single proxy statement will be delivered to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual report, please notify your broker, direct your written request to Lifevantage Corporation.,LifeVantage Corporation, Carrie E. Carlander, Secretary, (858) 312-8000, 11545 W. Bernardo Court, Suite 301, San Diego, California 92127.92127. Shareholders who currently receive multiple copies of the proxy statement at their address and would like to request “householding” of their communications should contact their broker.
OTHER MATTERSANNUAL REPORT ON FORM 10-K
Our BoardAnnual Report on Form 10-k, which has been filed with the SEC for our fiscal year ended June 30, 2010, will be made available to shareholders without charge upon written request to LifeVantage Corporation, Attn: Carrie E. Carlander, Corporate Secretary, 11545 W. Bernardo Court, Suite 301, San Diego, California 92127
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OTHER MATTERS
Our board of Directorsdirectors knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.
INCORPORATION BY REFERENCE
This proxy statement includes references to our website address. Our website address is intended to provide inactive, textual references only. The information on our website is not part of this proxy statement.
| | | | | |
| | By Order of the Board of Directors
| |
| October 1, 2010 | /s/ Carrie E. Carlander | |
| | Carrie E. Carlander | |
| | Chief Financial Officer, Secretary and Treasurer | |
|
October 28, 2009
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ANNEX A
LIFEVANTAGE CORPORATION
2010 LONG-TERM INCENTIVE PLAN
(Effective as of September 27, 2010)
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LIFEVANTAGE CORPORATION
2010 LONG-TERM INCENTIVE PLAN
(Effective as of September 27, 2010)
SECTION 1. INTRODUCTION.
The Board adopted the Lifevantage Corporation 2010 Long-Term Incentive Plan on the Adoption Date conditioned on and subject to obtaining Company shareholder approval.
The purposes of the Plan are to (i) attract and retain the services of persons eligible to participate in the Plan; (ii) motivate Selected Employees, by means of appropriate equity and performance based incentives, to achieve long-term performance goals; (iii) provide equity and performance based incentive compensation opportunities that are competitive with those of other similar companies; and (iv) further align Participants’ interests with those of the Company’s other shareholders and thereby promote the financial interests of the Company and its affiliates and enhancement of shareholder return.
The Plan seeks to achieve this purpose by providing for Awards in the form of Options (which may constitute Incentive Stock Options or Nonstatutory Stock Options), Stock Appreciation Rights, Restricted Stock Grants, Stock Units and/or Cash Awards.
Capitalized terms shall have the meaning provided in Section 2 unless otherwise provided in this Plan or any related Stock Option Agreement, SAR Agreement, Restricted Stock Grant Agreement or Stock Unit Agreement.
SECTION 2. DEFINITIONS.
(a) “Adoption Date” means September 27, 2010.
(b) “Affiliate” means any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50% of such entity. For purposes of determining an individual’s “Service,” this definition shall include any entity other than a Subsidiary, if the Company, a Parent and/or one or more Subsidiaries own not less than 50% of such entity.
(c) “Award” means any award, under this Plan, to a Selected Employee of an Option, SAR, Restricted Stock Grant, Stock Unit or to a Covered Employment of any Cash Award.
(d) “Board” means the Board of Directors of the Company, as constituted from time to time.
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(e) “Cash Award” means an award of a bonus opportunity, under this Plan, to a Covered Employee that is (i) payable only in cash, (ii) not an Option, SAR, Restricted Stock Grant or Stock Unit, (iii) paid based on achievement of Performance Goal(s) and (iv) intended to qualify as performance-based compensation under Code Section 162(m).
(f) “Cashless Exercise” means, to the extent that a Stock Option Agreement so provides and as permitted by applicable law and in accordance with any procedures established by the Committee, an arrangement whereby payment of some or all of the aggregate Exercise Price may be made all or in part by delivery of an irrevocable direction to a securities broker to sell Shares and to deliver all or part of the sale proceeds to the Company. Cashless Exercise may also be utilized to satisfy an Option’s tax withholding obligations as provided in Section 14(b).
(g) “Cause” means, except as may otherwise be provided in a Participant employment agreement or applicable Award agreement (and in such case the employment agreement or Award agreement shall govern as to the definition of Cause), (i) dishonesty or fraud, (ii) serious willful misconduct, (iii) unauthorized use or disclosure of confidential information or trade secrets, (iv) conviction or confession of a felony, or (v) any other act or omission by a Participant that, in the opinion of the Company, could reasonably be expected to adversely affect the Company’s or a Subsidiary’s or an Affiliate’s business, financial condition, prospects and/or reputation. In each of the foregoing subclauses (i) through (v), whether or not a “Cause” event has occurred will be determined by the Company’s chief human resources officer or other person performing that function or, in the case of Participants who are Directors or Officers or Section 16 Persons, the Board, each of whose determination shall be final, conclusive and binding. A Participant’s Service shall be deemed to have terminated for Cause if, after the Participant’s Service has terminated, facts and circumstances are discovered that would have justified a termination for Cause, including, without limitation, violation of material Company policies or breach of confidentiality or other restrictive covenants that may apply to the Participant.
(h) “Change in Control” except as may otherwise be provided in a Participant employment agreement or applicable Award agreement (and in such case the employment agreement or Award agreement shall govern as to the definition of Change in Control), means the occurrence of any one or more of the following: (i) any merger, consolidation or business combination in which the shareholders of the Company immediately prior to the merger, consolidation or business combination do not own at least a majority of the outstanding equity interests of the surviving parent entity, (ii) the sale of all or substantially all of the Company’s assets, (iii) the acquisition of beneficial ownership or control of (including, without limitation, power to vote) a majority of the outstanding Shares by any person or entity (including a “group” as defined by or under Section 13(d)(3) of the Exchange Act), (iv) the dissolution or liquidation of the Company, (v) a contested election of directors, as a result of which or in connection with which the persons who were directors of the Company before such election or their nominees cease to constitute a majority of the Board, or (vi) any other event specified by the Board or the Committee.
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A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transactions.
(i) “Code” means the Internal Revenue Code of 1986, as amended, and the regulations and interpretations promulgated thereunder.
(j) “Committee” means a committee described in Section 3.
(k) “Common Stock” means the Company’s common stock, $0.001 par value per Share, and any other securities into which such shares are changed, for which such shares are exchanged or which may be issued in respect thereof.
(l) “Company” means Lifevantage Corporation, a Colorado corporation.
(m) “Consultant” means an individual (or entity) which performs bona fide services to the Company, a Parent, a Subsidiary or an Affiliate, other than as an Employee or Director or Non-Employee Director.
(n) “Covered Employees” means those individuals whose compensation is subject to the deduction limitations of Code Section 162(m).
(o) “Director” means a member of the Board who is also an Employee.
(p) “Disability” means, except as may otherwise be provided in a Participant employment agreement or applicable Award agreement (and in such case the employment agreement or Award agreement shall govern as to the definition of Disability), that the Participant is classified as disabled under a long-term disability policy of the Company or, if no such policy applies, the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
(q) “Employee” means any individual who is a common-law employee of the Company, or of a Parent, or of a Subsidiary or of an Affiliate.
(r) “Equity Award” means any Award other than a Cash Award.
(s) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(t) “Exercise Price” means, in the case of an Option, the amount for which a Share may be purchased upon exercise of such Option, as specified in the applicable Stock Option Agreement. “Exercise Price,” in the case of a SAR, means an amount, as specified in the applicable SAR Agreement, which is subtracted from the Fair Market Value in determining the amount payable to a Participant upon exercise of such SAR.
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(u) “Fair Market Value” means the market price of a Share, determined by the Committee as follows:
(i) If the Shares were traded on a stock exchange (such as the New York Stock Exchange, NYSE Amex, the NASDAQ Global Market or NASDAQ Capital Market) at the time of determination, then the Fair Market Value shall be equal to the regular session closing price for such stock as reported by such exchange (or the exchange or market with the greatest volume of trading in the Shares) on the date of determination, or if there were no sales on such date, on the last date preceding such date on which a closing price was reported;
(ii) If the Shares were traded on the OTC Bulletin Board at the time of determination, then the Fair Market Value shall be equal to the last-sale price reported by the OTC Bulletin Board for such date, or if there were no sales on such date, on the last date preceding such date on which a sale was reported; and
(iii) If neither of the foregoing provisions is applicable, then the Fair Market Value shall be determined by the Committee in good faith using a reasonable application of a reasonable valuation method as the Committee deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported by the applicable exchange or the OTC Bulletin Board, as applicable, or a nationally recognized publisher of stock prices or quotations (including an electronic on-line publication). Such determination shall be conclusive and binding on all persons.
(v) “Fiscal Year” means the Company’s fiscal year.
(w) “Incentive Stock Option” or “ISO” means an incentive stock option described in Code Section 422.
(x) “Net Exercise” means, to the extent that a Stock Option Agreement so provides and as permitted by applicable law, an arrangement pursuant to which the number of Shares issued to the Optionee in connection with the Optionee’s exercise of the Option will be reduced by the Company’s retention of a portion of such Shares. Upon such a net exercise of an Option, the Optionee will receive a net number of Shares that is equal to (i) the number of Shares as to which the Option is being exercised minus (ii) the quotient (rounded down to the nearest whole number) of the aggregate Exercise Price of the Shares being exercised divided by the Fair Market Value of a Share on the Option exercise date. The number of Shares covered by clause (ii) will be retained by the Company and not delivered to the Optionee. No fractional Shares will be created as a result of a Net Exercise and the Optionee must contemporaneously pay for any portion of the aggregate Exercise Price that is not covered by the Shares retained by the Company under clause (ii). The number of Shares delivered to the Optionee may be further reduced if Net Exercise is utilized under Section 14(b) to satisfy applicable tax withholding obligations.
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(y) “Non-Employee Director” means a member of the Board who is not an Employee.
(z) “Nonstatutory Stock Option” or “NSO” means a stock option that is not an ISO.
(aa) “Officer” means an individual who is an officer of the Company within the meaning of Rule 16a-1(f) of the Exchange Act.
(bb) “Option” means an ISO or NSO granted under the Plan entitling the Optionee to purchase a specified number of Shares, at such times and applying a specified Exercise Price, as provided in the applicable Stock Option Agreement.
(cc) “Optionee” means an individual, estate or other entity that holds an Option.
(dd) “Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the Adoption Date shall be considered a Parent commencing as of such date.
(ee) “Participant” means an individual or estate or other entity that holds an Award.
(ff) “Performance Goals” means one or more objective performance targets established for a Participant which may be described in terms of Company-wide objectives and/or objectives that are related to the performance of the individual Participant or a Parent, Subsidiary, Affiliate, division, department or function within the Company or entity in which the Participant is employed, and such targets may be applied either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Committee. Any Performance Goals that are included in an Award in order to make such Award qualify as performance-based compensation under Code Section 162(m) shall be limited to one or more of the following target objectives: (i) operating income; (ii) earnings before interest, taxes, depreciation and amortization, or EBITDA; (iii) earnings; (iv) cash flow; (v) market share; (vi) sales or revenue; (vii) expenses; (viii) cost of goods sold; (ix) profit/loss or profit margin; (x) working capital; (xi) return on equity or assets or investment; (xii) earnings per share; (xiii) economic value added, or EVA; (xiv) stock price including without limitation total shareholder return; (xv) price/earnings ratio; (xvi) debt or debt-to-equity; (xvii) accounts receivable; (xviii) writeoffs; (xix) cash; (xx) assets; (xxi) liquidity; (xxii) operations; (xxiii) research or related milestones; (xxiv) business development; (xxv) intellectual property (e.g., patents); (xxvi) product development; (xxvii) regulatory activity; (xxviii) information technology; (xxix) financings; (xxx) product quality control; (xxxi) management; (xxxii)
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human resources; (xxxiii) corporate governance; (xxxiv) compliance program; (xxxv) legal matters; (xxxvi) internal controls; (xxxvii) policies and procedures; (xxxviii) accounting and reporting; (xxxix) strategic alliances, licensing and partnering; (xl) site, plant or building development; (xli) corporate transactions including without limitation mergers, acquisitions, divestitures and/or joint ventures; (xlii) customer satisfaction; (xliii) capital expenditures and/or (xliv) Company advancement milestones. Awards issued to individuals who are not Covered Employees (or which are not intended to qualify as performance-based compensation under Code Section 162(m)) may take into account other (or no) factors.
(gg) “Performance Period” means any period of time as determined by the Committee, in its sole discretion. The Committee may establish different Performance Periods for different Participants, and the Committee may establish concurrent or overlapping Performance Periods.
(hh) “Plan” means this Lifevantage Corporation 2010 Long-Term Incentive Plan as it may be amended from time to time.
(ii) “Prior Equity Compensation Plans” means the Company’s 2007 Long-Term Incentive Plan (as assumed from Lifeline Therapeutics, Inc., a Colorado corporation) and its predecessor plans and any other Company equity compensation plans.
(jj) “Re-Price” means that the Company has lowered or reduced the Exercise Price of outstanding Options and/or outstanding SARs for any Participant(s) in a manner described by SEC Regulation S-K Item 402(d)(2)(viii) (or as described in any successor provision(s) or definition(s)).
(kk) “Restricted Stock Grant” means Shares awarded under the Plan as provided in Section 9.
(ll) “Restricted Stock Grant Agreement” means the agreement described in Section 9 evidencing each Award of a Restricted Stock Grant.
(mm) “SAR Agreement” means the agreement described in Section 8 evidencing each Award of a Stock Appreciation Right.
(nn) “SEC” means the Securities and Exchange Commission.
(oo) “Section 16 Persons” means those officers, directors or other persons who are subject to Section 16 of the Exchange Act.
(pp) “Securities Act” means the Securities Act of 1933, as amended.
(qq) “Selected Employee” means an Employee, Consultant, Director, or Non-Employee Director who has been selected by the Committee to receive an Award under the Plan.
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(rr) “Separation From Service” means a Participant’s separation from service with the Company within the meaning provided to such term under Code Section 409A.
(ss) “Service” means service as an Employee, Director, Non-Employee Director or Consultant. Service will be deemed terminated as soon as the entity to which Service is being provided is no longer either (i) the Company, (ii) a Parent, (iii) a Subsidiary or (iv) an Affiliate. A Participant’s Service does not terminate if he or she is a common-law employee and goes on a bona fide leave of absence that was approved by the Company in writing and the terms of the leave provide for continued service crediting, or when continued service crediting is required by applicable law. However, for purposes of determining whether an Option is entitled to continuing ISO status, a common-law employee’s Service will be treated as terminating ninety (90) days after such Employee went on leave, unless such Employee’s right to return to active work is guaranteed by law or by a contract. Service terminates in any event when the approved leave ends, unless such Employee immediately returns to active work. The Committee determines which leaves count toward Service, and when Service commences and terminates for all purposes under the Plan. For avoidance of doubt, a Participant’s Service shall not be deemed terminated if the Committee determines that (i) a transition of employment to service with a partnership, joint venture or corporation not meeting the requirements of a Subsidiary in which the Company or a Subsidiary is a party is not considered a termination of Service, (ii) the Participant transfers between service as an Employee and service as a Consultant or other personal service provider (or vice versa), or (iii) the Participant transfers between service as an Employee and that of a Non-Employee Director (or vice versa). The Committee may determine whether any company transaction, such as a sale or spin-off of a division or subsidiary that employs a Participant, shall be deemed to result in termination of Service for purposes of any affected Awards, and the Committee’s decision shall be final and binding.
(tt) “Share” means one share of Common Stock.
(uu) “Shareholder Approval Date” means the date that the Company’s shareholders approve this Plan provided that such approval must occur on or before the first anniversary of the Adoption Date.
(vv) “Specified Employee” means a Participant who is considered a “specified employee” within the meaning provided to such term under Code Section 409A.
(ww) “Stock Appreciation Right” or “SAR” means a stock appreciation right awarded under the Plan which provides the holder with a right to potentially receive, in cash and/or Shares, value with respect to a specific number of Shares, as provided in Section 8.
(xx) “Stock Option Agreement” means the agreement described in Section 6 evidencing each Award of an Option.
(yy) “Stock Unit” means a bookkeeping entry representing the equivalent of one Share, as awarded under the Plan and as provided in Section 10.
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(zz) “Stock Unit Agreement” means the agreement described in Section 10 evidencing each Award of Stock Units.
(aaa) “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the Adoption Date shall be considered a Subsidiary commencing as of such date.
(bbb) “Termination Date” means the date on which a Participant’s Service terminates as determined by the Committee.
(ccc) “10-Percent Shareholder” means an individual who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company, its Parent or any of its Subsidiaries. In determining stock ownership, the attribution rules of Section 424(d) of the Code shall be applied.
SECTION 3. ADMINISTRATION.
(a) Committee Composition. A Committee appointed by the Board shall administer the Plan. Unless the Board provides otherwise, the Board’s Compensation Committee (or a comparable committee of the Board) shall be the Committee. The Board may also at any time terminate the functions of the Committee and reassume all powers and authority previously delegated to the Committee.
To the extent required, the Committee shall have membership composition which enables (i) Awards to Section 16 Persons to qualify as exempt from liability under Section 16(b) of the Exchange Act and (ii) Awards to Covered Employees to be able to qualify as performance-based compensation as provided under Code Section 162(m) (to the extent such Awards are intended to qualify as performance-based compensation).
The Board may also appoint one or more separate committees of the Board, each composed of directors of the Company who need not qualify under Rule 16b-3 of the Exchange Act or Code Section 162(m), that may administer the Plan with respect to Selected Employees who are not Section 16 Persons or Covered Employees, respectively, may grant Awards under the Plan to such Selected Employees and may determine all terms of such Awards. To the extent permitted by applicable law, the Board may also appoint a committee, composed of one or more Officers, that may authorize Awards to Employees (who are not Section 16 Persons or Covered Employees) within parameters specified by the Board and consistent with any limitations imposed by applicable law.
Notwithstanding the foregoing, the Board shall constitute the Committee and shall administer the Plan with respect to all Awards granted to Non-Employee Directors.
(b) Authority of the Committee. Subject to the provisions of the Plan, the Committee shall have full authority and discretion to take any actions it deems necessary
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or advisable for the administration of the Plan. Such actions shall include without limitation:
(i) determining Selected Employees who are to receive Awards under the Plan;
(ii) determining the type, number, vesting requirements, Performance Goals (if any) and their degree of satisfaction, and other features and conditions of such Awards and amending such Awards;
(iii) correcting any defect, supplying any omission, or reconciling or clarifying any inconsistency in the Plan or any Award agreement;
(iv) accelerating the vesting, or extending the post-termination exercise term, or waiving restrictions, of Awards at any time and under such terms and conditions as it deems appropriate;
(v) interpreting the Plan and any Award agreements;
(vi) making all other decisions relating to the operation of the Plan; and
(vii) adopting such plans or subplans as may be deemed necessary or appropriate to provide for the participation by non-U.S. employees of the Company and its Subsidiaries and Affiliates, which plans and/or subplans shall be attached hereto as appendices.
The Committee may adopt such rules or guidelines, as it deems appropriate to implement the Plan. The Committee’s determinations under the Plan shall be final, conclusive and binding on all persons. The Committee’s decisions and determinations need not be uniform and may be made selectively among Participants in the Committee’s sole discretion. The Committee’s decisions and determinations will be afforded the maximum deference provided by applicable law.
(c) Indemnification. To the maximum extent permitted by applicable law, each member of the Committee, or of the Board, or any persons (including without limitation Employees and Officers) who are delegated by the Board or Committee to perform administrative functions in connection with the Plan, shall be indemnified and held harmless by the Company against and from (i) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan or any Award Agreement, and (ii) from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other
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rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under any power that the Company may have to indemnify them or hold them harmless.
SECTION 4. GENERAL.
(a) General Eligibility. Only Employees, Consultants, Directors and Non-Employee Directors shall be eligible for designation as Selected Employees by the Committee.
(b) Incentive Stock Options. Only Selected Employees who are common-law employees of the Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs. In addition, a Selected Employee who is a 10-Percent Shareholder shall not be eligible for the grant of an ISO unless the requirements set forth in Section 422(c)(5) of the Code are satisfied. If and to the extent that any Shares are issued under a portion of any Option that exceeds the $100,000 limitation of Section 422 of the Code, such Shares shall not be treated as issued under an ISO notwithstanding any designation otherwise. Certain decisions, amendments, interpretations and actions by the Committee and certain actions by a Participant may cause an Option to cease to qualify as an ISO pursuant to the Code and by accepting an Option the Participant agrees in advance to such disqualifying action.
(c) Buyout of Awards. Subject to approval of Company shareholders, the Committee may at any time (i) offer to buy out for a payment in cash or cash equivalents (including without limitation Shares valued at Fair Market Value that may or may not be issued from this Plan) an Award previously granted or (ii) authorize a Participant to elect to cash out an Award previously granted, in either case at such time and based upon such terms and conditions as the Committee shall establish.
(d) Restrictions on Shares. Any Shares issued pursuant to an Award shall be subject to such Company policies, rights of repurchase, rights of first refusal and other transfer restrictions as the Committee may determine. Such restrictions shall apply in addition to any restrictions that may apply to holders of Shares generally and shall also comply to the extent necessary with applicable law. In no event shall the Company be required to issue fractional Shares under this Plan.
(e) Beneficiaries. A Participant may designate one or more beneficiaries with respect to an Award by timely filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Participant’s death. If no beneficiary was designated or if no designated beneficiary survives the Participant, then after a Participant’s death any vested Award(s) shall be transferred or distributed to the Participant’s estate.
(f) Performance Goals. The Committee may, in its discretion, include Performance Goals or other performance objectives in any Award. If Performance Goals are included in Awards to Covered Employees in order to enable such Awards to qualify as performance-based compensation under Code Section 162(m), then such Awards will
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be subject to the achievement of such Performance Goals that will be established and administered pursuant to the requirements of Code Section 162(m) and as described in this Section 4(f). If an Award is intended to qualify as performance-based compensation under Code Section 162(m) and to the extent required by Code Section 162(m), the Committee shall certify in writing the degree to which the Performance Goals have been satisfied before any Shares underlying an Award or any Award payments are released to a Covered Employee with respect to a Performance Period. Without limitation, the approved minutes of a Committee meeting shall constitute such written certification. With respect to Awards that are intended to qualify as performance-based compensation under Code Section 162(m), the Committee may adjust the evaluation of performance under a Performance Goal (to the extent permitted by Code Section 162(m)) to remove the effects of certain events including without limitation the following:
(i) asset write-downs or discontinued operations,
(ii) litigation or claim judgments or settlements,
(iii) material changes in or provisions under tax law, accounting principles or other such laws or provisions affecting reported results,
(iv) reorganizations or restructuring programs or divestitures or acquisitions, and/or
(v) extraordinary non-recurring items as described in applicable accounting principles and/or items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence.
Notwithstanding satisfaction of any completion of any Performance Goal, to the extent specified at the time of grant of an Award, the number of Shares, Options, SARs, Stock Units or other benefits granted, issued, retainable and/or vested under an Award on account of satisfaction of such Performance Goals may be reduced by the Committee on the basis of such further considerations as the Committee in its sole discretion shall determine. Awards with Performance Goals or performance objectives (if any) that are granted to Selected Employees who are not Covered Employees or any Awards to Covered Employees which are not intended to qualify as performance-based compensation under Code Section 162(m) need not comply with the requirements of Code Section 162(m).
(g) No Rights as a Shareholder. A Participant, or a transferee of a Participant, shall have no rights as a shareholder (including without limitation voting rights or dividend or distribution rights) with respect to any Common Stock covered by an Award until such person becomes entitled to receive such Common Stock, has satisfied any applicable withholding or tax obligations relating to the Award and the Common Stock has been issued to the Participant. No adjustment shall be made for cash or stock dividends or other rights for which the record date is prior to the date when such Common Stock is issued, except as expressly provided in Section 11.
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(h) Termination of Service. Unless the applicable Award agreement or employment agreement provides otherwise (and in such case, the Award or employment agreement shall govern as to the consequences of a termination of Service for such Awards), the following rules shall govern the vesting, exercisability and term of outstanding Awards held by a Participant in the event of termination of such Participant’s Service (in all cases subject to the term of the Option or SAR as applicable):
(i) if the Service of a Participant is terminated for Cause, then all of Participant’s Options, SARs, unvested portions of Stock Units and unvested portions of Restricted Stock Grants shall terminate and be forfeited immediately without consideration as of the Termination Date (except for repayment of any amounts the Participant had previously paid to the Company to acquire Shares underlying the forfeited Awards);
(ii) if the Service of Participant is terminated for any reason other than for Cause and other due to Participant’s death or Disability), then the vested portion of Participant’s then-outstanding Options/SARs may be exercised by such Participant or his or her personal representative within three months after the Termination Date and all unvested portions of Participant’s outstanding Awards shall be forfeited without consideration as of the Termination Date (except for repayment of any amounts the Participant had previously paid to the Company to acquire Shares underlying the forfeited Awards); or
(iii) if the Service of a Participant is terminated due to Participant’s death or Disability, the vested portion of Participant’s then outstanding Options/SARs may be exercised within twelve months after the Termination Date and all unvested portions of any outstanding Awards shall be forfeited without consideration as of the Termination Date (except for repayment of any amounts the Participant had previously paid to the Company to acquire Shares underlying the forfeited Awards).
(i) Code Section 409A. Notwithstanding anything in the Plan to the contrary, the Plan and Awards granted hereunder are intended to comply with the requirements of Code Section 409A and shall be interpreted in a manner consistent with such intention. In the event that any provision of the Plan or an Award Agreement is determined by the Committee to not comply with the applicable requirements of Code Section 409A and the Treasury Regulations and other guidance issued thereunder, the Committee shall have the authority to take such actions and to make such changes to the Plan or an Award Agreement as the Committee deems necessary to comply with such requirements, provided that no such action shall adversely affect any outstanding Award without the consent of the affected Participant. Each payment to a Participant made pursuant to this Plan shall be considered a separate payment and not one of a series of payments for purposes of Code Section 409A. Notwithstanding the foregoing or anything elsewhere in the Plan or an Award Agreement to the contrary, if upon a Participant’s Separation From
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Service he/she is then a Specified Employee, then solely to the extent necessary to comply with Code Section 409A and avoid the imposition of taxes under Code Section 409A, the Company shall defer payment of “nonqualified deferred compensation” subject to Code Section 409A payable as a result of and within six (6) months following such Separation From Service under this Plan until the earlier of (i) the first business day of the seventh month following the Participant’s Separation From Service, or (ii) ten (10) days after the Company receives written confirmation of the Participant’s death. Any such delayed payments shall be made without interest. In no event whatsoever shall the Company be liable for any additional tax, interest or penalties that may be imposed on a Participant by Code Section 409A or for any damages for failing to comply with Code Section 409A.
(j) Suspension or Termination of Awards. If at any time (including after a notice of exercise has been delivered) the Committee (or the Board), reasonably believes that a Participant has committed an act of Cause (which includes a failure to act), the Committee (or Board) may suspend the Participant’s right to exercise any Option or SAR (or payment of a Cash Award or vesting of Restricted Stock Grants or Stock Units) pending a determination of whether there was in fact an act of Cause. If the Committee (or the Board) determines a Participant has committed an act of Cause, neither the Participant nor his or her estate shall be entitled to exercise any outstanding Option or SAR whatsoever and all of Participant’s outstanding Awards shall then terminate without consideration. Any determination by the Committee (or the Board) with respect to the foregoing shall be final, conclusive and binding on all interested parties.
(k) Electronic Communications. Subject to compliance with applicable law and/or regulations, an Award agreement or other documentation or notices relating to the Plan and/or Awards may be communicated to Participants by electronic media.
(l) Unfunded Plan. Insofar as it provides for Awards, the Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Participants who are granted Awards under this Plan, any such accounts will be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets which may at any time be represented by Awards, nor shall this Plan be construed as providing for such segregation, nor shall the Company or the Committee be deemed to be a trustee of stock or cash to be awarded under the Plan.
(m) Liability of Company. The Company (or members of the Board or Committee) shall not be liable to a Participant or other persons as to: (a) the non-issuance or sale of Shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder; and (b) any unexpected or adverse tax consequence or any tax consequence expected, but not realized, by any Participant or other person due to the grant, receipt, exercise or settlement of any Award granted hereunder.
(n) Reformation. In the event any provision of this Plan shall be held illegal or invalid for any reason, such provisions will be reformed by the Board if possible and
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to the extent needed in order to be held legal and valid. If it is not possible to reform the illegal or invalid provisions then the illegality or invalidity shall not affect the remaining parts of this Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
(o) Director Fees. If the Board affirmatively determines to implement this Section 4(o), then each Non-Employee Director may be awarded either a Restricted Stock Grant or Stock Units in accordance with the terms and conditions contained in this Section 4(o).
(i)Participation Elections. Each Non-Employee Director may elect to receive a Restricted Stock Grant (or Stock Units) under the Plan in lieu of payment of a portion of his or her annual cash retainer. Such an election may be for any dollar or percentage amount equal to at least 50% of the Non-Employee Director’s annual cash retainer (up to a limit of 100% of the annual cash retainer of Non-Employee Directors). The election must be made prior to the beginning of the annual board of directors cycle which shall be any twelve month continuous period designated by the Board (the “Board Cycle”) and such election may need to be made earlier as necessary to comply with Code Section 409A. Any amount of the annual retainer not elected to be received as a Restricted Stock Grant or Stock Units shall be payable in cash in accordance with the Company’s standard payment procedures.
(ii)Awards of Stock. As soon as reasonably practicable following the commencement of each Board Cycle, each Non-Employee Director who has timely made the election described in Section 4(o)(i) with respect to that Board Cycle shall be granted a number of Shares pursuant to a Restricted Stock Grant (or Stock Units) having a fair market value equivalent to the amount of the annual cash retainer elected to be received as a Restricted Stock Grant (or Stock Units) under Section 4(o)(i) for such Board Cycle, rounded down to the nearest full Share. Such Restricted Stock Grant (or Stock Units) will be evidenced by an executed Restricted Stock Grant Agreement (or Stock Unit Agreement) between the Company and the electing Non-Employee Director. Such Restricted Stock Grant (or Stock Units) may be subject to vesting conditions at grant.
(iii)Other Terms. Shares (or Stock Units) granted under this Section 4(o) shall otherwise be subject to the terms of the Plan applicable to Non-Employee Directors or to Participants generally (other than provisions specifically applying only to Employees).
(p) Re Pricing of Options or SARs. Notwithstanding anything to the contrary, outstanding Options or SARs may not be Re-Priced without the approval of Company shareholders.
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(q) Successor Provision. Any reference to a statute, rule or regulation, or to a section of a statute, rule or regulation, is a reference to that statute, rule, regulation, or section as amended from time to time, both before and after the Adoption Date and including any successor provisions.
(r) Governing Law. This Plan and all Awards shall be construed in accordance with and governed by the laws of the State of Colorado but without regard to its conflict of law provisions. The Committee may provide that any dispute as to any Award shall be presented and determined in such forum as the Committee may specify, including through binding arbitration. Unless otherwise provided in the Award Agreement, recipients of an Award under the Plan are deemed to submit to the exclusive jurisdiction and venue of the federal or state courts of Colorado to resolve any and all issues that may arise out of or relate to the Plan or any related Award Agreement.
SECTION 5. SHARES SUBJECT TO PLAN AND SHARE LIMITS.
(a) Basic Limitations. The Common Stock issuable under the Plan shall be authorized but unissued Shares or treasury Shares. Subject to adjustment as provided in Section 11, the maximum aggregate number of Shares that may be issued under the Plan shall not exceed 3,500,000 Shares. The maximum aggregate number of Shares that may be issued in connection with any single type of Equity Award (NSOs, ISOs, SARs, Restricted Stock Grants or Stock Units) under the Plan shall be 3,500,000 Shares.
(b) Share Re-Use. If Equity Awards are forfeited or are terminated for any reason other than being exercised, then the Shares underlying such Equity Awards shall again become available for Equity Awards under the Plan. If SARs are exercised or Stock Units are settled in Shares, then only the number of Shares (if any) actually issued in settlement of such SARs or Stock Units shall reduce the number of Shares available under the Share limits stated in Section 5(a) and the balance shall again become available for Equity Awards under the Plan. If a Participant pays the Exercise Price by Net Exercise or by surrendering previously owned Shares (or by stock attestation) and/or, as permitted by the Committee, pays any withholding tax obligation with respect to an Equity Award by electing to have Shares withheld or surrendering previously owned Shares (or by stock attestation), the surrendered Shares and the Shares withheld to pay taxes shall be available for issuance under the Plan and shall not count toward the Share limits set forth in Section 5(a). Any Shares that are delivered and any Equity Awards that are granted by, or become obligations of, the Company, as a result of the assumption by the Company of, or in substitution for, outstanding awards previously granted by another entity (as provided in Sections 6(e), 8(f), 9(e) or 10(e)) shall not be counted against the Share limits specified in Sections 5(a) and 5(d).
(c) Dividend Equivalents. Any dividend equivalents distributed under the Plan shall not be applied against the number of Shares available for Equity Awards.
(d) Code Section 162(m) Limits. For so long as: (x) the Company is a “publicly held corporation” within the meaning of Code Section 162(m) and (y) the deduction limitations of Code Section 162(m) are applicable to Awards granted to the
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Company’s Covered Employees under this Plan, then the limits specified below in this Section 5(d) shall be applicable to Awards issued under the Plan that are intended to qualify as performance-based compensation under Code Section 162(m).
(i)Limits on Options. No Selected Employee shall receive Options to purchase Shares during any Fiscal Year that in the aggregate cover in excess of 1,250,000 Shares.
(ii)Limits on SARs. No Selected Employee shall receive Awards of SARs during any Fiscal Year that in the aggregate cover in excess of 1,250,000 Shares.
(iii)Limits on Restricted Stock Grants. No Selected Employee shall receive Restricted Stock Grants during any Fiscal Year that in the aggregate cover in excess of 1,250,000 Shares.
(iv)Limits on Stock Units. No Selected Employee shall receive Stock Units during any Fiscal Year that in the aggregate cover in excess of 1,250,000 Shares.
(v)Limit on Total Amount of All Equity Awards. No Selected Employee shall receive Equity Awards during any Fiscal Year in excess of the aggregate amount of 1,250,000 Shares, whether such Equity Awards are in the form of Options, SARs, Restricted Stock Grants and/or Stock Units.
(vi)Increased Limits for First Year of Employment. The numerical limits expressed in the foregoing subparts (i) through (v) shall in each case be increased to 2,500,000 Shares with respect to Equity Awards granted to a Selected Employee during the Fiscal Year of the Selected Employee’s commencement of employment with the Company or during the first Fiscal Year that the Selected Employee becomes a Covered Employee.
(vii)Dollar Limit for Cash Awards. The maximum aggregate value of Cash Awards that may be received by any one Selected Employee with respect to any individual Fiscal Year is $1,000,000.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each Award of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan (including without limitation any Performance Goals). The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. The Stock Option Agreement shall also specify whether the Option is an ISO and if not specified then the Option shall be an NSO.
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(b) Number of Shares. Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for adjustment of such number in accordance with Section 11.
(c) Exercise Price. An Option’s Exercise Price shall be established by the Committee and set forth in a Stock Option Agreement. Except with respect to outstanding stock options being assumed or Options being granted in exchange for cancellation of outstanding options granted by another issuer as provided under Section 6(e), the Exercise Price of an Option shall not be less than 100% of the Fair Market Value (110% for ISO Awards to 10-Percent Shareholders) on the date of Award.
(d) Exercisability and Term. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become vested and/or exercisable. The Stock Option Agreement shall also specify the term of the Option; provided that the term of an Option shall in no event exceed ten years from the date of Award (and may be for a shorter period of time than ten years). No Option can be exercised after the expiration date specified in the applicable Stock Option Agreement. A Stock Option Agreement may provide for accelerated vesting in the event of the Participant’s death, or Disability or other events. Notwithstanding the previous sentence, an ISO that is granted to a 10-Percent Shareholder shall have a maximum term of five years. Notwithstanding any other provision of the Plan, no Option can be exercised after the expiration date provided in the applicable Stock Option Agreement. A Stock Option Agreement may permit an Optionee to exercise an Option before it is vested (an “early exercise”), subject to the Company’s right of repurchase at the original Exercise Price of any Shares acquired under the unvested portion of the Option which right of repurchase shall lapse at the same rate the Option would have vested had there been no early exercise. In no event shall the Company be required to issue fractional Shares upon the exercise of an Option and the Committee may specify a minimum number of Shares that must be purchased in any one Option exercise.
(e) Modifications or Assumption of Options. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding Options or may accept the cancellation of outstanding stock options (whether granted by the Company or by another issuer) in return for the grant of new Options for the same or a different number of Shares and at the same or a different Exercise Price. For avoidance of doubt, the Committee may not Re-Price outstanding Options without approval from the Company’s shareholders. No modification of an Option shall, without the consent of the Optionee, impair his or her rights or increase his or her obligations under such Option.
(f) Assignment or Transfer of Options. Except as otherwise provided in the applicable Stock Option Agreement and then only to the extent permitted by applicable law, no Option shall be transferable by the Optionee other than by will or by the laws of descent and distribution. Except as otherwise provided in the applicable Stock Option Agreement, an Option may be exercised during the lifetime of the Optionee only by Optionee or by the guardian or legal representative of the Optionee. No Option or interest therein may be assigned, pledged or hypothecated by the Optionee during his or
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her lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.
SECTION 7. PAYMENT FOR OPTION SHARES.
(a) General Rule. The entire Exercise Price of Shares issued upon exercise of Options shall be payable in cash at the time when such Shares are purchased by the Optionee, except as follows and if so provided for in an applicable Stock Option Agreement:
(i) In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. The Stock Option Agreement may specify that payment may be made in any form(s) described in this Section 7.
(ii) In the case of an NSO granted under the Plan, the Committee may, in its discretion at any time, accept payment in any form(s) described in this Section 7.
(b) Surrender of Stock. To the extent that the Committee makes this Section 7(b) applicable to an Option in a Stock Option Agreement, payment for all or a part of the Exercise Price may be made with Shares which have already been owned by the Optionee for such duration as shall be specified by the Committee. Such Shares shall be valued at their Fair Market Value on the date when the new Shares are purchased under the Plan.
(c) Cashless Exercise. To the extent that the Committee makes this Section 7(c) applicable to an Option in a Stock Option Agreement, payment for all or a part of the Exercise Price may be made through Cashless Exercise.
(d) Net Exercise. To the extent that the Committee makes this Section 7(d) applicable to an Option in a Stock Option Agreement, payment for all or a part of the Exercise Price may be made through Net Exercise.
(e) Other Forms of Payment. To the extent that the Committee makes this Section 7(e) applicable to an Option in a Stock Option Agreement, payment may be made in any other form that is consistent with applicable laws, regulations and rules and approved by the Committee.
SECTION 8. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS.
(a) SAR Agreement. Each Award of a SAR under the Plan shall be evidenced by a SAR Agreement between the Participant and the Company. Such SAR shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan (including without limitation any Performance Goals). A SAR Agreement may provide for a maximum limit on the amount of any payout notwithstanding the Fair Market Value on the date of exercise of the SAR. The provisions of the various SAR Agreements entered into under the Plan need not be
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identical. SARs may be granted in consideration of a reduction in the Participant’s other compensation.
(b) Number of Shares. Each SAR Agreement shall specify the number of Shares to which the SAR pertains and is subject to adjustment of such number in accordance with Section 11.
(c) Exercise Price. Each SAR Agreement shall specify the Exercise Price. Except with respect to outstanding stock appreciation rights being assumed or SARs being granted in exchange for cancellation of outstanding stock appreciation rights granted by another issuer as provided under Section 8(f), the Exercise Price of a SAR shall not be less than 100% of the Fair Market Value on the date of Award.
(d) Exercisability and Term. Each SAR Agreement shall specify the date when all or any installment of the SAR is to become exercisable. The SAR Agreement shall also specify the term of the SAR which shall not exceed ten years from the date of Award. No SAR can be exercised after the expiration date specified in the applicable SAR Agreement. A SAR Agreement may provide for accelerated exercisability in the event of the Participant’s death, or Disability or other events and may provide for expiration prior to the end of its term in the event of the termination of the Participant’s Service. A SAR may be included in an ISO only at the time of Award but may be included in an NSO at the time of Award or at any subsequent time, but not later than six months before the expiration of such NSO. A SAR granted under the Plan may provide that it will be exercisable only in the event of a Change in Control.
(e) Exercise of SARs. If, on the date when a SAR expires, the Exercise Price under such SAR is less than the Fair Market Value on such date but any portion of such SAR has not been exercised or surrendered, then such SAR may automatically be deemed to be exercised as of such date with respect to such portion to the extent so provided in the applicable SAR agreement. Upon exercise of a SAR, the Participant (or any person having the right to exercise the SAR after Participant’s death) shall receive from the Company (i) Shares, (ii) cash or (iii) any combination of Shares and cash, as the Committee shall determine. The amount of cash and/or the Fair Market Value of Shares received upon exercise of SARs shall, in the aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender) of the Shares subject to the SARs exceeds the Exercise Price of the Shares.
(f) Modification or Assumption of SARs. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding SARs or may accept the cancellation of outstanding SARs (including stock appreciation rights granted by another issuer) in return for the grant of new SARs for the same or a different number of Shares and at the same or a different Exercise Price. For avoidance of doubt, the Committee may not Re-Price outstanding SARs without approval from the Company’s shareholders. No modification of a SAR shall, without the consent of the Participant, impair his or her rights or increase his or her obligations under such SAR.
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(g) Assignment or Transfer of SARs. Except as otherwise provided in the applicable SAR Agreement and then only to the extent permitted by applicable law, no SAR shall be transferable by the Participant other than by will or by the laws of descent and distribution. Except as otherwise provided in the applicable SAR Agreement, a SAR may be exercised during the lifetime of the Participant only by the Participant or by the guardian or legal representative of the Participant. No SAR or interest therein may be assigned, pledged or hypothecated by the Participant during his or her lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.
SECTION 9. TERMS AND CONDITIONS FOR RESTRICTED STOCK GRANTS.
(a) Restricted Stock Grant Agreement. Each Restricted Stock Grant awarded under the Plan shall be evidenced by a Restricted Stock Grant Agreement between the Participant and the Company. Each Restricted Stock Grant shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan (including without limitation any Performance Goals). The provisions of the Restricted Stock Grant Agreements entered into under the Plan need not be identical.
(b) Number of Shares and Payment. Each Restricted Stock Grant Agreement shall specify the number of Shares to which the Restricted Stock Grant pertains and is subject to adjustment of such number in accordance with Section 11. Restricted Stock Grants may be issued with or without cash consideration under the Plan.
(c) Vesting Conditions. Each Restricted Stock Grant may or may not be subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Restricted Stock Grant Agreement. A Restricted Stock Grant Agreement may provide for accelerated vesting in the event of the Participant’s death, or Disability or other events.
(d) Voting and Dividend Rights. The holder of a Restricted Stock Grant (irrespective of whether the Shares subject to the Restricted Stock Grant are vested or unvested) awarded under the Plan shall have the same voting, dividend and other rights as the Company’s other shareholders. However, any dividends received on Shares that are unvested (whether such dividends are in the form of cash or Shares) may be subject to the same vesting conditions and restrictions as the Restricted Stock Grant with respect to which the dividends were paid. Such additional Shares issued as dividends that are subject to the Restricted Stock Grant shall not reduce the number of Shares available for issuance under Section 5.
(e) Modification or Assumption of Restricted Stock Grants. Within the limitations of the Plan, the Committee may modify or assume outstanding Restricted Stock Grants or may accept the cancellation of outstanding Restricted Stock Grants (including stock granted by another issuer) in return for the grant of new Restricted Stock Grants for the same or a different number of Shares. No modification of a Restricted
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Stock Grant shall, without the consent of the Participant, impair his or her rights or increase his or her obligations under such Restricted Stock Grant.
(f) Assignment or Transfer of Restricted Stock Grants. Except as provided in Section 14, or in a Restricted Stock Grant Agreement, or as required by applicable law, a Restricted Stock Grant awarded under the Plan shall not be anticipated, assigned, attached, garnished, optioned, transferred or made subject to any creditor’s process, whether voluntarily, involuntarily or by operation of law. Any act in violation of this Section 9(f) shall be void. However, this Section 9(f) shall not preclude a Participant from designating a beneficiary pursuant to Section 4(e) nor shall it preclude a transfer of Restricted Stock Grant Awards by will or pursuant to Section 4(e).
SECTION 10. TERMS AND CONDITIONS OF STOCK UNITS.
(a) Stock Unit Agreement. Each Award of Stock Units under the Plan shall be evidenced by a Stock Unit Agreement between the Participant and the Company. Such Stock Units shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan (including without limitation any Performance Goals). The provisions of the various Stock Unit Agreements entered into under the Plan need not be identical. Stock Units may be granted in consideration of a reduction in the Participant’s other compensation.
(b) Number of Shares and Payment. Each Stock Unit Agreement shall specify the number of Shares to which the Stock Unit Grant pertains and is subject to adjustment of such number in accordance with Section 11. To the extent that an Award is granted in the form of Stock Units, no cash consideration shall be required of the Award recipients.
(c) Vesting Conditions. Each Award of Stock Units may or may not be subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Stock Unit Agreement. A Stock Unit Agreement may provide for accelerated vesting in the event of the Participant’s death, or Disability or other events.
(d) Voting and Dividend Rights. The holders of Stock Units shall have no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at the Committee’s discretion, carry with it a right to dividend equivalents. Such right entitles the holder to be credited with an amount equal to all cash or Common Stock dividends paid on one Share while the Stock Unit is outstanding. Dividend equivalents may be converted into additional Stock Units. Settlement of dividend equivalents may be made in the form of cash, in the form of Shares, or in a combination of both. Prior to vesting of the Stock Units, any dividend equivalents accrued on such unvested Stock Units may be subject to the same vesting conditions and restrictions as the Stock Units to which they attach.
(e) Modification or Assumption of Stock Units. Within the limitations of the Plan, the Committee may modify or assume outstanding Stock Units or may accept the cancellation of outstanding Stock Units (including stock units granted by another issuer)
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in return for the grant of new Stock Units for the same or a different number of Shares. No modification of a Stock Unit shall, without the consent of the Participant, impair his or her rights or increase his or her obligations under such Stock Unit.
(f) Assignment or Transfer of Stock Units. Except as provided in Section 14, or in a Stock Unit Agreement, or as required by applicable law, Stock Units shall not be anticipated, assigned, attached, garnished, optioned, transferred or made subject to any creditor’s process, whether voluntarily, involuntarily or by operation of law. Any act in violation of this Section 10(f) shall be void. However, this Section 10(f) shall not preclude a Participant from designating a beneficiary pursuant to Section 4(e) nor shall it preclude a transfer of Stock Units pursuant to Section 4(e).
(g) Form and Time of Settlement of Stock Units. Settlement of vested Stock Units may be made in the form of (a) cash, (b) Shares or (c) any combination of both, as determined by the Committee. The actual number of Stock Units eligible for settlement may be larger or smaller than the number included in the original Award. Methods of converting Stock Units into cash may include (without limitation) a method based on the average Fair Market Value of Shares over a series of trading days. Except as otherwise provided in a Stock Unit Agreement or a timely completed deferral election, vested Stock Units shall be settled within thirty days after vesting. The distribution may occur or commence when all vesting conditions applicable to the Stock Units have been satisfied or have lapsed, or it may be deferred, in accordance with applicable law, to a later specified date. The amount of a deferred distribution may be increased by an interest factor or by dividend equivalents. Until an Award of Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to Section 11.
(h) Creditors’ Rights. A holder of Stock Units shall have no rights other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Stock Unit Agreement.
SECTION 11. ADJUSTMENTS.
(a) Adjustments. In the event of a subdivision of the outstanding Shares, a declaration of a dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an amount that has a material effect on the price of Shares, a combination or consolidation of the outstanding Shares (by reclassification or otherwise) into a lesser number of Shares, a stock split, a reverse stock split, a reclassification or other distribution of the Shares without the receipt of consideration by the Company, of or on the Common Stock, a recapitalization, a combination, a spin-off or a similar occurrence, the Committee shall make equitable and proportionate adjustments to:
(i) the Share limits on Equity Awards specified in Section 5(a);
(ii) the number and kind of securities available for Equity Awards (and which can be issued as ISOs) under Section 5;
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(iii) the Share limits on Equity Awards issued under the Plan that are intended to qualify as performance-based compensation under Code Section 162(m) under Section 5(d);
(iv) the number and kind of securities covered by each outstanding Equity Award;
(v) the Exercise Price under each outstanding SAR and Option; and
(vi) the number and kind of outstanding securities issued under the Plan.
(b) Participant Rights. Except as provided in this Section 11, a Participant shall have no rights by reason of any issue by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. If by reason of an adjustment pursuant to this Section 11, a Participant’s Equity Award covers additional or different shares of stock or securities, then such additional or different shares and the Equity Award in respect thereof shall be subject to all of the terms, conditions and restrictions which were applicable to the Equity Award and the Shares subject to the Equity Award prior to such adjustment.
(c) Fractional Shares. Any adjustment of Shares pursuant to this Section 11 shall be rounded down to the nearest whole number of Shares. Under no circumstances shall the Company be required to authorize or issue fractional shares. To the extent permitted by applicable law, no consideration shall be provided as a result of any fractional shares not being issued or authorized.
SECTION 12. EFFECT OF A CHANGE IN CONTROL.
(a) Merger or Reorganization. In the event that the Company is a party to a merger or other reorganization, outstanding Awards shall be subject to the agreement of merger or reorganization. Such agreement may provide, without limitation, that subject to the consummation of the merger or other reorganization, for the assumption (or substitution) of outstanding Awards by the surviving corporation or its parent, for their continuation by the Company (if the Company is a surviving corporation), for accelerated vesting or for their cancellation with or without consideration, in all cases without the consent of the Participant.
(b) Acceleration. Except as otherwise provided in the applicable Award Agreement (and in such case the applicable Award agreement shall govern), in the event that a Change in Control occurs and there is no assumption, substitution or continuation of Awards pursuant to Section 12(a), the Committee may in its discretion provide that all Awards shall vest and become exercisable as of immediately before such Change in Control. For avoidance of doubt, “substitution” includes, without limitation, an Award being replaced by a cash award that provides an equivalent intrinsic value (wherein for
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Equity Awards intrinsic value equals the difference between the market value of a Share and any per Share exercise price).
SECTION 13. LIMITATIONS ON RIGHTS.
(a) Retention Rights. Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain in Service as an Employee, Consultant, Director or Non-Employee Director or to receive any other Awards under the Plan. The Company and its Parents and Subsidiaries and Affiliates reserve the right to terminate the Service of any person at any time, and for any reason, subject to applicable laws, the Company’s Articles of Incorporation and Bylaws and a written employment agreement (if any).
(b) Regulatory Requirements. Any other provision of the Plan notwithstanding, the obligation of the Company to issue Shares or other securities under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Shares or other securities pursuant to any Equity Award prior to the satisfaction of all legal requirements relating to the issuance of such Shares or other securities, to their registration, qualification or listing or to an exemption from registration, qualification or listing.
(c) Dissolution. To the extent not previously exercised or settled, Options, SARs, unvested Stock Units and unvested Restricted Stock Grants shall terminate immediately prior to the dissolution or liquidation of the Company and shall be forfeited to the Company.
(d) Clawback Policy. The Company may (i) cause the cancellation of any Award, (ii) require reimbursement of any Award by a Participant and (iii) effect any other right of recoupment of equity or other compensation provided under this Plan or otherwise in accordance with Company policies and/or applicable law (each, a “Clawback Policy”). In addition, a Participant may be required to repay to the Company certain previously paid compensation, whether provided under this Plan or an Award Agreement or otherwise, in accordance with the Clawback Policy.
SECTION 14. TAXES.
(a) General. A Participant shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with his or her Award. The Company shall not be required to issue any Shares or make any cash payment under the Plan until such obligations are satisfied.
(b) Share Withholding. The Committee in its discretion may permit or require a Participant to satisfy all or part of his or her withholding or income tax obligations by having the Company withhold all or a portion of any Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Shares that he or she previously acquired (or by stock attestation). Such Shares shall be valued based on the value of the actual trade or, if there is none, the Fair Market Value as of the previous day.
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Any payment of taxes by assigning Shares to the Company may be subject to restrictions, including, but not limited to, any restrictions required by rules of the SEC. The Committee may also, in its discretion, permit or require a Participant to satisfy withholding or income tax obligations (up to the maximum amount permitted by applicable law) related to an Equity Award through a sale of Shares underlying the Equity Award or, in the case of Options, through Net Exercise or Cashless Exercise.
SECTION 15. DURATION AND AMENDMENTS.
(a) Term of the Plan. The Plan, as set forth herein, is effective on the Adoption Date but is conditioned upon and subject to the approval of the Company’s shareholders. No settlement of Awards or exercise of Options or SARs may occur before the Shareholder Approval Date. If the Company’s shareholders do not approve the Plan on or before the first anniversary of the Adoption Date, then the Plan shall terminate and be null and void and any Awards granted under the Plan shall be then forfeited without consideration (except for repayment of any amounts that Participants had previously paid to the Company to acquire Shares underlying the forfeited Awards). In any event, the Plan shall terminate no later than on the day before the tenth anniversary of the Adoption Date. The Plan may be terminated by the Board on any earlier date pursuant to Section 15(b). This Plan will not in any way affect outstanding awards that were issued under the Prior Equity Compensation Plans or other Company equity compensation plans.
(b) Right to Amend or Terminate the Plan. The Board may amend or terminate the Plan at any time and for any reason. No Awards shall be granted under the Plan after the Plan’s termination. An amendment of the Plan shall be subject to the approval of the Company’s shareholders only to the extent required by applicable laws, regulations or rules. In addition, no such amendment or termination shall be made which would impair the rights of any Participant, without such Participant’s written consent, under any then-outstanding Award, provided that no such Participant consent shall be required with respect to any amendment or alteration if the Committee determines in its sole discretion that such amendment or alteration either (i) is required or advisable in order for the Company, the Plan or the Award to satisfy or conform to any law or regulation or to meet the requirements of any accounting standard, or (ii) is not reasonably likely to significantly diminish the benefits provided under such Award, or that any such diminishment has been adequately compensated. In the event of any conflict in terms between the Plan and any Award agreement, the terms of the Plan shall prevail and govern.
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SECTION 16. EXECUTION.
To record the adoption of this Plan by the Board, the Company has caused its duly authorized Officer to execute this Plan on behalf of the Company.
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| | LIFEVANTAGE CORPORATION
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| | | Lifevantage Corporation |
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Annual Meeting Proxy Card |
000004 | | 000000000.000 ext |
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Least Address Line
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| | | C 1234567890 J N T |
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▼PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.▼
A | o | | Mark this box with an X if you have made changes to your name or address details above. |
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Annual Meeting Proxy Card | | | (123456 | ) | | | C0123456789 | | | | 12345 | |
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AElection of Directors
1. | | To elect six (6) directors to hold office for Proposals — The Board of Directors recommends a one-year term expiring atvoteFOR all the 2010 Annual Meeting of Shareholdersnominees listed and until their respective successors are electedFOR Proposals 2, 3 and qualified. |
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Nominees: | | For | | Withhold |
01 — Dr. James D. Crapo | | o | | o |
02 — Mr. Jack R. Thompson | | o | | o |
03 — Dr. Joe M. McCord | | o | | o |
04 — Mr. David W. Brown | | o | | o |
05 — Mr. Richard Doutre’ Jones | | o | | o |
06 — Mr. Garry Mauro | | o | | o4. |
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| 1. | | To elect the following (8) persons (except as marked to the contrary) as directors of the Company for a one-year term, or until their successors are duly elected and qualified:
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| | | For 01 - Mr. David W. Brown | | Against02 - Dr. James D. Crapo | | Abstain03 - Dr. Joe M. McCord | | 04 - Mr. Richard Doutre’ Jones | |
| | 05 - Mr. Garry Mauro | | 06 - Mr. Douglas C. Robinson | | 07 - Mr. C. Mike Lu | | 08 - Ms. Kay Stout Manovich | |
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| | | o | | Mark here to voteFOR all nominees | o | Mark here toWITHHOLD vote from all nominees | | |
| | | | | | | | | | | | 01 | | | | 02 | | | | 03 | | | | 04 | | | | 05 | | | | 06 | | | | 07 | | | | 08 | | | |
| | | o | | For AllEXCEPT - To withhold a vote for one or more nominees, mark the box to the left and the corresponding numbered box(es) to the right. | o | | o | | o | | o | | o | | o | | o | | o | | |
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| | | | | For | | Against | | Abstain | | | | | | | | For | | Against | | Abstain |
| 2. | | To ratify the appointment of Ehrhardt Keefe Steiner & Hottman PC as independent auditors of the Company for its fiscal year ending June 30, 2011. | | o | | o | | o | | | 3. | | | To ratify the approval of the Company’s 2010 Long-Term Incentive Plan. | | o | | o | | o |
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| 4. | | To conduct any other business properly brought before the meeting. | | o | | o | | o | | | | | | | | | | |
B | Non-Voting Items |
| Change of Address — Please print new address below |
C | Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below |
IMPORTANT: Please sign below exactly as the shares are issued. When shares are held by joint tenants, both should sign. When signing as an attorney, executor, administrator, trustee or guardian, please give the full title as such. If a corporation, please sign in full corporate name by the president or other authorized officer. If a partnership, please sign in the partnership name by an authorized person.
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| Date (mm/dd/yyyy) — Please print date below. | | Signature 1 — Please keep signature within the box. | | Signature 2 — Please keep signature within the box. |
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2. To ratify the appointment of Ehrhardt Keefe Steiner & Hottman PC as independent auditors of the Company for its fiscal year ending June 30, 2010.
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3. To ratify an increase to the shares reserved for issuance under the Company’s 2007 Long-Term Incentive Plan (“Plan”) from 6 million shares to 10 million shares.
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EAuthorized Signatures — Sign Here — This section must be completedImportant Notice Regarding the Availability of Proxy Materials for your instructionsthe Stockholder Meeting to be executed.
Held on November 19, 2010: The Proxy Statement and Annual Report to Stockholders are available at
http://www.lifevantage.com/investor-sec.aspx
▼ PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. ▼
NOTE: Please sign exactly as name appears on this proxy. If joint owners EACH should sign this proxy. When signing as attorney, executor, administrator, trustee, guardian or corporate officer, please give your FULL title as such.
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Signature 1 - Please keep signature within the box | | Signature 2 - Please keep signature within the box | | Date (mm/dd/yyyy) |
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§
Proxy — LIFEVANTAGE CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JANUARY 15, 2010 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 19, 2010.
The undersigned shareholderstockholder(s) whose signature(s) appear(s) on the reverse side of LifeVantage Corporation (the “Company”)this proxy form hereby appointsappoint(s) Carrie E. Carlander and David W. Brown and eachor either of them theas proxies, of the undersigned, with power to act without the other and with full power of substitution, and hereby authorize(s) them to attendrepresent and representvote all shares of common stock of LifeVantage Corporation (the “Company”) that the undersigned atstockholder(s) would be entitled to vote on all matters that may come before the Annual Meeting of Shareholders of the CompanyStockholders to be held on Friday, January 15,November 19, 2010, and at any adjournment or postponement thereof, and to vote all of such shares that the undersigned is entitled to vote at such Annual Meeting or at any adjournment or postponement thereof, as statedthereof. The proxies shall vote subject to the directions indicated on the reverse side.
side of this card and the proxies are authorized to vote in their discretion upon such other business as may properly come before the meeting and any adjournments or postponements thereof.THIS PROXY WILL BE VOTED BY THE PROXIES AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED “FOR” EACH OF THE DIRECTOR NOMINEES IN ACCORDANCE WITH THEIR BEST JUDGMENT UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.The proxies will vote as the board of directors recommends where a choice is not specified.
Your are urged to mark,Please complete, sign, date and return yourmail the enclosed proxy without delaycard in the accompanying envelope even if you intend to be present at the Annual Meeting. Returning the proxy will not limit your right to vote in person or to attend the Annual Meeting, but will ensure your representation if you cannot attend. If you hold shares in more than one name or if your stock is registered in more than one way, you may receive more than one copy of the proxy materials. If so, please sign and return envelope provided for
each of the proxies that purpose, which requires no postage if mailed in the United States.you receive so that all of your shares may be voted. The proxy is revocable at any time before it is voted.
THANK YOU FOR VOTINGVOTING.
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