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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No.     )
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USANA Health Sciences, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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3838 West Parkway Boulevard

Salt Lake City, Utah 84120-6336

(801) 954-7100

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 27, 2011

 

Dear Shareholder:

 

You are invited to attend the Annual Meeting of Shareholders of USANA Health Sciences, Inc. (the “Company”), to be held at its corporate headquarters, 3838 West Parkway Boulevard, Salt Lake City, Utah 84120 on April 27, 2011 at 11:00 a.m., Mountain Daylight Time, for the following purposes:

 

1.                                       To elect five directors to serve for one year each, until the next Annual Meeting of Shareholders and until a  successor is elected and shall qualify;

 

2.                                       To amend the USANA 2006 Equity Incentive Award Plan to increase the maximum number of shares of common stock reserved for issuance under the plan by 5,000,000 shares;

 

3.                                       To ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accountant for the fiscal year 2011;

 

4.                                       To hold an advisory vote on a resolution to approve the compensation of the Company’s Named Executive Officers (as defined in the “Compensation Discussion and Analysis” section of this Proxy Statement);

 

5.                                       To hold an advisory vote on whether a shareholder advisory vote on the compensation of our Named Executive Officers should be held every one, two or three years; and

 

6.                                       To consider and act upon such other business as may properly come before the meeting or at any postponement or adjournment thereof.

 

Only USANA shareholders of record at the close of business on March 4, 2011, have the right to receive notice of, and to vote at, the Annual Meeting of Shareholders and any adjournment thereof.  A list of shareholders entitled to receive notice and to vote at the meeting will be available for examination by a shareholder for any purpose that is germane to the meeting during ordinary business hours at the offices of USANA at 3838 West Parkway Boulevard, Salt Lake City, Utah, during the 10 days prior to the meeting.

 

YOUR VOTE IS IMPORTANT.  WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED STAMPED ENVELOPE.

 

	By Order of the Board of Directors,
	James H. Bramble
	Corporate Secretary

 

Salt Lake City, Utah

March 21, 2011

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on April 27, 2011: Our Annual Report to Shareholders and the accompanying Proxy Statement are available online at www.usana.com.

 

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USANA HEALTH SCIENCES, INC.

ANNUAL MEETING OF SHAREHOLDERS

PROXY STATEMENT

 

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT	1
QUESTIONS AND ANSWERS	3
PROPOSAL #1: ELECTION OF DIRECTORS	6
BOARD OF DIRECTORS AND CORPORATE GOVERNANCE	8
— Board Leadership Structure	8
— Director Independence	8
— Communications with Directors	9
— Committees of the Board of Directors	9
— Risk Oversight and Management	10
— Compensation Risk Analysis	11
— Board Committee Charters	11
— Corporate Governance Guidelines	12
— Code of Ethics	12
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION	12
EXECUTIVE OFFICERS	12
EXECUTIVE COMPENSATION	15
— Compensation Discussion and Analysis	15
— Role of Compensation Committee	15
— Role of Corporate Leadership in Assisting Compensation Committee	15
— Compensation Philosophy and Objectives	15
— Compensation Consultants	16
— Components of Compensation	16
REPORT OF THE COMPENSATION COMMITTEE	22
SUMMARY COMPENSATION TABLE	23
GRANTS OF PLAN-BASED AWARDS	24
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END	25
OPTION EXERCISES AND STOCK VESTED	26
COMPENSATION OF DIRECTORS	26
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	27
EQUITY COMPENSATION PLAN INFORMATION	29
PROPOSAL #2: INCREASE OF SHARES UNDER THE USANA 2006 EQUITY INCENTIVE AWARD PLAN	29
PROPOSAL #3: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS	34
— Policy on Pre-Approval of Audit and Permissible Non-Audit Services	34
— Independence	35
— Financial Statements and Reports	35
— Services	35
REPORT OF THE AUDIT COMMITTEE	35
EMPLOYMENT CONTRACTS AND OTHER ARRANGEMENTS	36
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE	36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	37
PROPOSAL #4: ADVISORY VOTE ON EXECUTIVE COMPENSATION	38
PROPOSAL #5: FREQUENCY OF ADVISORY VOTE ON EXECUTIVE COMPENSATION	39
OTHER MATTERS	39
ANNUAL REPORT	40
FURTHER INFORMATION	41

 

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PROXY STATEMENT

FOR THE ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD APRIL 27, 2011

 

The Board of Directors of USANA Health Sciences, Inc. (“We,” “USANA,” or the “Company”) is soliciting proxies to be used at the 2011 Annual Meeting of Shareholders (the “Annual Meeting”).  Distribution of this Proxy Statement and the accompanying proxy card is scheduled to begin on or about March 21, 2011.  The mailing address of USANA’s principal executive offices is 3838 West Parkway Boulevard, Salt Lake City, Utah 84120-6336.  If you attend the Annual Meeting, you may withdraw any prior vote by voting in person on any matters that are brought properly before the meeting.  USANA will pay all expenses of the meeting, including the cost of printing and mailing the proxy statement and related materials and the cost of the solicitation process.

 

QUESTIONS AND ANSWERS ABOUT THE MEETING

 

Why did I receive this proxy statement?  We have sent you the Notice of Annual Meeting of Shareholders, this Proxy Statement, and the enclosed proxy or voting instruction card because the USANA Board of Directors is soliciting your proxy to vote at USANA’s Annual Meeting of Shareholders, which will be held on April 27, 2011 at 11:00 a.m. at USANA’s corporate headquarters at 3838 West Parkway Boulevard, Salt Lake City, Utah 84120.  This Proxy Statement contains information about matters to be voted on at the Annual Meeting.

 

Who is entitled to vote?  You may vote if you owned common stock as of the close of business on March 4, 2011. On March 4, 2011, there were 15,858,737 shares of our common stock that were outstanding and entitled to vote at the Annual Meeting.

 

How many votes do I have?  Each share of common stock that you own at the close of business on March 4, 2011 entitles you to one vote.

 

What am I voting on?  You will be voting on proposals to:

 

·                  Elect five directors to serve for one year each, until the next Annual Meeting of Shareholders or until a successor is elected and shall qualify;

 

·                  Amend the USANA 2006 Equity Incentive Award Plan to increase the maximum number of shares of common stock reserved for issuance under the plan by 5,000,000 shares;

 

·                  Ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accountant for the fiscal year 2011;

 

·                  Vote on an advisory resolution regarding the compensation of the Company’s Named Executive Officers;

 

·                  Vote on an advisory resolution whether future shareholder advisory votes on the compensation of the Company’s Named Executive Officers should be held every one, two or three years; and

 

·                  Consider and act upon such other business as may properly come before the meeting or at any postponement or adjournment thereof.

 

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How do I vote?  You can vote in the following ways:

 

·                  By Mail:  If you are a holder of record, you can vote by marking, dating and signing your proxy card and returning it by mail in the enclosed postage-paid addressed envelope.  If you hold your shares in the account or name of a broker or bank, or “street name”, please complete and mail the voting instruction card that you will receive from your broker or bank.

 

·                  At the Annual Meeting:  If you are planning to attend the Annual Meeting and wish to vote your shares in person, we will give you a ballot at the meeting.  If your shares are held in street name, you need to bring an account statement or letter from your broker, bank or other nominee, indicating that you are the beneficial owner of the shares on March 4, 2011, the record date for voting.  Even if you plan to be present at the meeting, we encourage you to complete and mail the enclosed card in advance of the meeting to vote your shares by proxy.

 

What if I return my proxy or voting instruction card but do not mark it to show how I am voting?  Your shares will be voted according to the instructions you have indicated on your proxy or voting instruction card.  You can specify whether your shares should be voted for all, some, or none of the nominees for director.  You can also specify whether you approve, disapprove, or abstain from the other proposals.  If no direction is indicated, your shares will be voted FOR the election of all of the nominees for director, FOR the increase of shares under the USANA 2006 Equity Incentive Award Plan, FOR the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accountant, FOR the approval of the resolution regarding compensation of the Company’s Named Executive Officers, and FOR an advisory vote on the Company’s compensation of our Named Executive Officers every THREE years.

 

May I revoke my proxy or change my vote after I return my proxy card or voting instruction card?  You may revoke your proxy or change your vote at any time before it is exercised in one of three ways:

 

·                  Notify our Corporate Secretary in writing before the Annual Meeting that you are revoking your proxy;

 

·                  Submit another proxy card (or voting instruction card if you hold your shares in street name) with a later date; or

 

·                  Vote in person on April 27, 2011, at the Annual Meeting.

 

What does it mean if I receive more than one proxy or voting instruction card?  It means that you have multiple accounts at the transfer agent and/or with banks and stockbrokers.  Please vote all of your shares by returning all proxy and voting instruction cards you receive.

 

What constitutes a quorum?  A quorum must be present to properly convene the Annual Meeting.  The presence, in person or by proxy, of the holders of a majority of the outstanding shares that are entitled to vote at the Annual Meeting constitutes a quorum.  You will be considered part of the quorum if you return a signed and dated proxy or voting instruction card or if you attend the Annual Meeting.  Abstentions and broker non-votes will be counted as shares present at the meeting for purposes of determining whether a quorum exists, but not as shares cast for any proposal.  Because abstentions and broker non-votes are not treated as shares cast, they would have no impact on any of the proposals.

 

What vote is required in order to approve each proposal?  The required vote is as follows:

 

·                  Election of Directors:  The election of the nominees for director requires the affirmative vote of a plurality of the shares cast at the Annual Meeting.  This means that the five nominees receiving the greatest number of votes in favor of their election will be elected, even if they receive less than a majority of votes cast at the meeting.  If you do not want to vote your shares for a particular

 

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nominee, you may so indicate in the space provided on the proxy card or on the voting instruction card.  In the unanticipated event that any of the nominees is unable or declines to serve, the proxy holder will have the discretion to vote the proxy for another person, as shall be designated by the Board of Directors to replace the nominee, or, in lieu thereof, the Board may reduce the number of directors.

 

·                  Increase in Shares under the USANA 2006 Equity Incentive Award Plan: Approval of the amendment to the USANA 2006 Equity Incentive Award Plan requires the affirmative vote of a majority of the shares cast at the Annual Meeting.

 

·                  Ratification of the Selection of Independent Registered Public Accountant:  Ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accountant requires the affirmative vote of a majority of the shares cast at the Annual Meeting.  If the shareholders do not ratify the appointment of PricewaterhouseCoopers LLP, the Audit Committee of the Board of Directors may, but is not required to, reconsider such appointment.

 

·                  Advisory Vote on Resolution Approving the Compensation of our Named Executive Officers: Approval of this advisory resolution requires the affirmative vote of a majority of the shares cast at the Annual Meeting.

 

·                  Advisory Vote on Whether to hold Future Shareholder Advisory Votes on the Compensation of our Named Executive Officers Every One, Two or Three Years: Generally, approval of any matter presented to shareholders requires an affirmative vote of a majority of the shares cast. However, because this vote is advisory and non-binding, if none of the frequency options receive a majority of the votes cast, the option receiving the greatest number of votes will be considered the frequency recommended by the Company’s shareholders. Even though this vote will neither be binding on the Company or the Board nor will it create or imply any change in the fiduciary duties of the Company or the Board, the Board of Directors will take into account the outcome of this vote in making a determination on the frequency at which advisory votes on executive compensation will be included in the Company’s proxy statement.

 

How will voting on any other business be conducted?  We do not know of any business or proposals to be considered at the Annual Meeting other than those that are described in this Proxy Statement.  If any other business is proposed and we decide to allow it to be presented at the Annual Meeting, the proxies that we receive from our shareholders give the proxy holders the authority to vote on that matter according to their best judgment.

 

Who will count the votes?  Broadridge Investor Communications Services will tabulate the votes that are received prior to the Annual Meeting.  Representatives of USANA will act as the inspectors of election and will tabulate the votes, if any, that are cast in person at the Annual Meeting.

 

May my broker vote my shares in the broker’s discretion if I do not provide guidance on how I wish to vote?  Pursuant to New York Stock Exchange (“NYSE”) rules, your broker will not have discretion to vote your shares absent direction from you on the matters to be presented at the Annual Meeting because such matters are “non-routine” within the meaning of such rules.

 

Who pays to prepare, mail, and solicit the proxies?  We will pay all of the costs of soliciting these proxies.  We will ask banks, brokers, and other nominees and fiduciaries to forward the proxy materials to the beneficial owners of our common stock and to obtain the authority of executed proxies.  We will reimburse them for their reasonable expenses.  In addition to the use of the mail, proxies may be solicited by our officers, directors, and other employees by telephone or by personal solicitation.  We will not pay additional compensation to these individuals.

 

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How do I submit a shareholder proposal for next year’s Annual Meeting?  Any shareholder who intends to present a proposal at the 2012 Annual Meeting of Shareholders must deliver such proposal to the Corporate Secretary, c/o USANA Health Sciences, Inc., 3838 West Parkway Blvd., Salt Lake City, Utah 84120, not later than November 25, 2011, if the proposal is submitted for inclusion in our proxy materials for that meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934.

 

Who should I call if I have questions?  If you have questions about the proposals or the Annual Meeting, you may call Patrique Richards, USANA Investor Relations, at (801) 954-7100.  You may also send an e-mail to investor.relations@us.usana.com.

 

PROPOSAL #1 — ELECTION OF DIRECTORS

 

Our Bylaws provide that the shareholders or the Board of Directors shall determine the number of directors from time to time, but that there shall be no less than three directors.  The Board of Directors, by resolution, has set the number of directors at five.  The Governance and Nominating Committee of the Board of Directors has nominated and recommends that our current five directors stand for re-election at the Annual Meeting.  Each director who is elected at the Annual Meeting will hold office until the Company’s Annual Meeting in 2012, until a successor is elected and qualified, or until the director resigns, is removed, or becomes disqualified.  The Board of Directors has no reason to believe that any of the nominees for director will be unwilling or unable to serve, if elected.  If due to unforeseen circumstances a nominee should become unavailable for election, the Board may either reduce the number of directors or may substitute another person for that nominee, in which event your shares will be voted for that other person.

 

Director Nominees

 

The nominees to the Board of Directors in 2011 are Robert Anciaux, Gilbert A. Fuller, Jerry G. McClain, Ronald S. Poelman, and Myron W. Wentz, Ph.D.  All of these nominees currently serve as members of the Board of Directors.  Messrs. Anciaux, McClain, and Poelman are independent directors under the rules of the NYSE.  The following information is furnished with respect to these nominees:

 

Robert Anciaux, 65, has served as a director of USANA since July 1996.  Since 1990, he has been the Managing Director of S.E.I. s.a., a consulting and investment management firm in Brussels, Belgium.  Additionally, since 1982 Mr. Anciaux has been self-employed as a venture capitalist in Europe, investing in various commercial, industrial, and real estate venture companies.  In some of these privately held companies, Mr. Anciaux also serves as a director.  Mr. Anciaux received an Ingenieur Commercial degree from Ecole de Commerce Solvay Universite Libre de Bruxelles.  We believe Mr. Anciaux’s qualifications to sit on our Board include his financial expertise and experience in providing consulting and strategic advisory services to complex organizations.

 

Gilbert A. Fuller, 70, has served as a director of USANA since September 2008.  Prior to that, he served as our Executive Vice President, Chief Financial Officer, and Secretary since January 2006.  Mr. Fuller joined USANA in May 1996 as the Vice President of Finance and served in this role until June 1999, when he was appointed as the Company’s Senior Vice President.  Mr. Fuller had served as the Company’s Chief Financial Officer since October 1997. Before joining USANA, from January 1994 to May 1996, Mr. Fuller was the Executive Vice President of Winder Dairy, Inc., a regional commercial dairy operation.  From May 1991 through October 1993, Mr. Fuller was Chief Administrative Officer and Treasurer of Melaleuca, Inc., a manufacturer and network marketer of personal care products.  From July 1984 through January 1991, Mr. Fuller was the Vice President and Treasurer of Norton Company, a multinational manufacturer of ceramics and abrasives.  He obtained his certified public accountant license in 1970 and kept it current until his career path developed into corporate finance.  Mr. Fuller received a B.S. in Accounting and an M.B.A. from the University of Utah. We believe Mr. Fuller’s qualification’s to sit on our Board include his 12 years of experience as an executive officer of USANA, his deep understanding of our business, people and products, his 15 years of experience as a financial officer in the direct selling industry, as well as his accounting, finance and corporate strategy expertise.

 

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Jerry G. McClain, 70, has served as a director of USANA since June 2001.  Since January 2003, Mr. McClain has been self-employed, operating his own investment and real estate business in Salt Lake City, Utah.  From August 2000 to December 2002, Mr. McClain was the Chief Financial Officer of Cerberian, Inc., a privately held company that was headquartered in Salt Lake City, Utah.  From 1998 to 2000, Mr. McClain was the Chief Financial Officer and Sr. Vice President of Assentive Solutions, Inc., a company he also co-founded.  From 1997 to 1998, Mr. McClain was the Chief Financial Officer for the Salt Lake Organizing Committee for the 2002 Winter Olympic Games.  Before 1997, Mr. McClain served as a key financial advisor to many companies as an Audit Partner and a Managing Partner of Ernst & Young LLP for 35 years in several cities throughout the world.  Mr. McClain is a former CPA and a graduate from the University of Southern Mississippi and Oklahoma State University, where he received a B.S. in Accounting and an M.S. in Accounting, respectively. We believe Mr. McClain’s qualifications to sit on our Board include his extensive international experience with accounting and financial matters for public companies, his years of experience as the chief financial officer of various organizations, his corporate governance expertise and his years of experience providing independent audits and strategic advice to complex organizations.

 

Ronald S. Poelman, 57, has served as a director of USANA since 1995.  Since 1994, he has been a partner in the Salt Lake City, Utah law firm of Jones, Waldo, Holbrook & McDonough, where he is head of the Corporate and Securities Practice Group.  Mr. Poelman began his legal career in Silicon Valley in California, and has assisted in the organization and financing of numerous companies for almost 30 years.  Mr. Poelman is the President of the Utah Chapter of the National Association of Corporate Directors and frequently lectures at the meetings of this and other organizations.  Mr. Poelman received a B.A. in English from Brigham Young University and a J.D. from the University of California, Berkeley. We believe Mr. Poelman’s qualifications to sit on our Board include his nearly 30 years of experience as a corporate, finance and securities attorney, his long association with and service to the National Associate of Corporate Directors, as well as his corporate governance and strategy expertise.

 

Myron W. Wentz, Ph.D., 70, founded USANA in 1992 and served as the Chief Executive Officer and Chairman of the Board of USANA from the time of its inception to July 2008, when he retired as Chief Executive Officer.  Dr. Wentz continues to serve as Chairman of the Board. In 1974, Dr. Wentz founded Gull Laboratories, Inc., which was a developer and manufacturer of medical diagnostic test kits and was the former parent corporation of USANA. Dr. Wentz served as Chairman of Gull from 1974 until 1998.  In 1998, Dr. Wentz founded Sanoviv, S.A. de C.V. (“Sanoviv”), a health and wellness center that is located near Rosarito, Mexico.  Joining a pathology group in Peoria, Illinois, from 1969 to 1973, Dr. Wentz served as infectious disease specialist and directed the microbiology and immunology laboratories for three hospitals in the Peoria area. He received a B.S. in Biology from North Central College, Naperville, Illinois, an M.S. in Microbiology from the University of North Dakota, and a Ph.D. in Microbiology and Immunology from the University of Utah. We believe Dr. Wentz’s qualifications to sit on our Board include his vast education and professional experience as a microbiologist, immunologist, and pioneer in the development of human cell culture technology, as well as his service as our founder, Chairman and formerly as our Chief Executive Officer.

 

We will vote your shares as you specify in your proxy card.  If you sign, date, and return your proxy card but do not specify how you want your shares voted, we will vote them FOR the election of each of the director nominees who are listed above.

 

RECOMMENDATION

 

The Board of Directors unanimously recommends a vote FOR each director nominee.

 

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BOARD OF DIRECTORS AND CORPORATE GOVERNANCE

 

The Board of Directors is elected by and is accountable to the shareholders of the Company.  The Board establishes policy and provides strategic direction, oversight, and control of the Company.  The Board met 10 times during fiscal year 2010.  All directors attended at least 75% of the meetings of the Board and the Board Committees of which they are members.

 

Board Leadership Structure

 

Our founder, Dr. Myron Wentz, is the Chairman of our Board of Directors and David A. Wentz is our Chief Executive Officer, or CEO. The Board has not adopted a specific policy on whether the same person should serve as both the chief executive officer and chairman of the board or, if the roles are separate, whether the chairman should be selected from the non-employee directors or should be an employee. The Board believes it is most appropriate to retain the discretion and flexibility to make these determinations at any given point in time in the way that it believes best to provide appropriate leadership for the Company at that time.

 

Historically, Dr. Wentz has served as both Chairman of the Board and CEO of the Company. In 2008, however, Dr. Wentz retired as CEO and the Board appointed David A. Wentz as CEO. We believe it is currently appropriate to separate the roles of CEO and Chairman of the Board as a result of the differences between the two roles. Our CEO is responsible for setting the strategic direction for the Company and the day-to-day leadership and performance of the Company, while the Chairman of the Board provides guidance to the CEO and sets the agenda for Board meetings and presides over meetings of the full Board. Although Dr. Wentz is not independent under the rules of the NYSE, the Board believes the experience, leadership and vision he provides as Chairman of the Board is essential to the short-and-long term success of the Company.

 

The Board maintains a number of governance practices to ensure effective independent oversight of Board decisions, including (i) the appointment of strong, independent directors who constitute a majority of the Board and intimately understand the Company’s business and industry; (ii) executive sessions of the independent directors in connection with every Board meeting; and (iii) annual evaluations of the performance of the Board, carried out by the independent directors.  The independent members of the Board have not chosen one particular director to act as the lead independent director or to preside at all executive sessions of the Board.

 

Director Independence

 

NYSE rules and regulations generally require listed companies to have a board of directors with a majority of independent directors.  However, the rules exempt companies meeting the definition of a “Controlled Company” from this and certain other requirements related to corporate governance.  The Board has determined that the Company is a “Controlled Company” under the NYSE rules because Gull Holdings, Ltd. owns and controls more than 50% of the Company’s outstanding shares of common stock. Gull Holdings, Ltd. is an entity that is solely owned and controlled by our founder and chairman, Dr. Myron Wentz.  Notwithstanding the Company’s status as a Controlled Company, a majority of the members of the Board of Directors are independent, as discussed below.

 

To assist the Board in making its determination regarding director independence, the Board has adopted independence standards that conform to the independence requirements of the NYSE. In addition to evaluating each director’s independence, the Board considers all relevant facts and circumstances in making its independence determination. We assess director independence on an annual basis.  The Board has determined, after careful review, that all of the current directors, other than Dr. Myron Wentz and Gilbert A. Fuller, who have also been nominated for election at the 2011 Annual Meeting are independent based on the applicable rules of the NYSE and the applicable regulations of the Securities and Exchange Commission (the “SEC”).  In particular, the Board noted that Robert Anciaux, Jerry G. McClain, and Ronald S. Poelman had no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company) and determined that each of them  is “independent” under NYSE listing standards.

 

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Communications with Directors

 

Our shareholders or other interested parties wishing to communicate with the Board of Directors, the non-management directors as a group, or any individual director may do so in writing by addressing the correspondence to that individual or group, c/o James H. Bramble, Corporate Secretary, USANA Health Sciences, Inc., 3838 West Parkway Boulevard, Salt Lake City, Utah 84120. All such communications will be initially received and processed by our Corporate Secretary. Accounting, audit, internal accounting controls and other financial matters will be referred to our Audit Committee chair. Other matters will be referred to the Board of Directors, the non-management directors, or individual directors as appropriate.

 

Directors are encouraged by the Company to attend the Annual Meeting of Shareholders if their schedules permit.  All directors, except Mr. Anciaux, were present at the Company’s Annual Meeting of the Shareholders that was held in April 2010.

 

Committees of the Board of Directors

 

The Board of Directors has a separately-designated standing Audit Committee, Compensation Committee, and Governance and Nominating Committee.  Information about the composition and responsibilities of each committee is provided below.

 

Governance and Nominating Committee.  The Governance and Nominating Committee of the Board of Directors (the “Governance Committee”) was established in February 2004.  The Governance Committee met four (4) times during 2010, with all members of the committee participating in each meeting.  Members of the Governance Committee during fiscal 2010 and at the date of this Proxy Statement are Gilbert A. Fuller, Chairman, Robert Anciaux, Jerry G. McClain, and Ronald S. Poelman. Each member of the Governance Committee except for Mr. Fuller meets the definition of “independent” set forth in the rules of the NYSE.  The Board believes that, considering Mr. Fuller’s 12 years of experience as an employee and executive officer of the Company, his sound judgment and his expertise with corporate governance matters, it is essential for him to serve as a member of the Governance Committee. As a result, the Board has utilized the Controlled Company exemption under the rules of the NYSE to appoint Mr. Fuller to the Governance Committee.

 

The Governance Committee’s responsibilities include: (i) identifying and evaluating prospective nominees for director, (ii) nominating the director nominees for election at the annual meeting of shareholders, (iii) periodically reviewing the performance of the Board and its members and determining the number, function, and composition of the Board’s committees, and (iv) overseeing corporate governance matters.  Additionally, in 2009 the Board delegated much of its responsibility for risk oversight and management to the Governance Committee.  The Governance Committee conducts these risk oversight and management functions as part of its corporate governance oversight and reports its findings with respect to risk oversight and management to the entire Board. More information about the Board of Directors and Governance Committee’s risk oversight and management practices is provided below under the caption “Risk Oversight and Management”.

 

The Governance Committee believes, among other things, that the Company’s Board of Directors should be composed of directors with varied, complementary backgrounds, which reflect a diversity of viewpoints, backgrounds, experience and other factors. The Governance Committee also believes that directors should, at a minimum, (i) have expertise that may be useful to the Company, (ii) possess the highest personal and professional ethics, and (iii) be willing and able to devote the required amount of time to the Company’s business.  In light of these beliefs, the Governance Committee considers many factors in evaluating the suitability of candidates for Board membership, and also determining whether a director should be retained and stand for re-election, including: whether the candidate meets the requirements for independence; the candidate’s background and experience, particularly in the Company’s industry; the candidate’s personal qualities, accomplishments, character and reputation in the business community; and the fit of the candidate’s individual skills and personality with those of the Company’s other directors.

 

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The Governance Committee may from time to time consider qualified nominees who are recommended by shareholders. The Governance Committee does not have different standards for evaluating nominees based on whether they have been suggested by our shareholders or by our directors.  Shareholders who wish to make such a recommendation may do so by sending a written notice, as described under the heading “How do I submit a shareholder proposal for next year’s Annual Meeting?” in the section of this Proxy Statement titled “Questions and Answers about the Meeting.” Nominees for director who are recommended by shareholders will be evaluated by the Governance Committee in the same manner as any other nominee for director.

 

Audit Committee.  The Audit Committee of the Board of Directors (the “Audit Committee”) is a standing committee of the Board, which has been established as required by Section 3(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and the rules of the NYSE.  The Audit Committee met five (5) times during 2010, with all members participating in each meeting.  Members of the Audit Committee during fiscal 2010 and at the date of this Proxy Statement are Jerry G. McClain, Chairman, Ronald S. Poelman, and Robert Anciaux, each of whom meets the definition of “independent” set forth above.  The Board has determined that Mr. McClain is an “audit committee financial expert,” as defined by the applicable regulations promulgated by the SEC under the Exchange Act. The Board also believes that each member of the Audit Committee meets the NYSE composition requirements, including the requirements regarding financial literacy.  The Audit Committee’s responsibilities include: (i) appointing the independent registered public accountant of the Company, (ii) reviewing, approving and monitoring the scope and cost of any proposed audit and non-audit services that are provided by, as well as the qualifications and independence of, the independent registered public accountant, (iii) reviewing and monitoring with the independent registered public accountant, and internal audit staff, the results of audits, any recommendations from the independent registered public accountant and the status of management’s actions for implementing such recommendations, as well as the quality and adequacy of our internal financial controls and internal audit staff, and (iv) reviewing and monitoring the Company’s annual and quarterly financial statements and the status of material pending litigation and regulatory proceedings.

 

Compensation Committee.  The Compensation Committee of the Board of Directors (the “Compensation Committee”) met four (4) times during 2010, with all members of the committee participating. Members of the Compensation Committee during fiscal 2010 and at the date of this Proxy Statement are Ronald S. Poelman, Chairman, Robert Anciaux, and Jerry G. McClain, each of whom meets the definition of “independent” set forth in the rules of the NYSE. In addition, all members of the Compensation Committee are outside directors as defined by Rule 162(m) of the Internal Revenue Code and are non-employee directors as defined by the applicable regulations promulgated by the SEC under the Exchange Act.   The Compensation Committee’s responsibilities include: (i) reviewing and recommending to the full Board of Directors the salaries, bonuses, and other forms of compensation and benefit plans for management and (ii) administering USANA’s equity compensation plans.  The duties of the Compensation Committee as the administrator of those plans include, but are not limited to, determining those persons who are eligible to receive awards, establishing terms of all awards, authorizing officers of the Company to execute grants of awards, and interpreting the provisions of the equity compensation plans and grants that are made under those plans.  The Compensation Committee is also responsible for reviewing and approving the Compensation Discussion and Analysis included in this Proxy Statement.

 

Risk Oversight and Management

 

Our Board of Directors is actively involved in the oversight and management of the material risks that could affect the Company. Historically, our Board of Directors has carried out its risk oversight and management responsibilities by both monitoring risk directly as a full board and, where appropriate, through Board committees. The Board’s direct role in our risk management process includes receiving regular reports from our executive officers and other members of senior management on areas of material risk to the Company, including operational, strategic, financial, legal and regulatory risks. In 2009, the Board delegated much of its direct risk oversight and management responsibility to the Governance Committee. The mandate of the Governance Committee with respect to risk management is to work with management to create an efficient process for assessing and reporting material risk to the Governance Committee and, ultimately, the Board. The Governance

 

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Committee worked with management to implement this process in 2009 and continued to utilize and refine this process during 2010.

 

The Board has also historically delegated the oversight and management of certain risks to the Audit Committee and Compensation Committee. The Audit Committee is responsible for the oversight of Company risks relating to accounting matters, financial reporting and related party transactions. To satisfy these oversight responsibilities, the Audit Committee regularly meets with and receives reports from the Company’s Chief Financial Officer, director of internal audit, the Company’s independent registered public accountant, PricewaterhouseCoopers LLP, and the Company’s in-house and outside counsel. The Audit Committee is also responsible for discussing with management, our independent registered public accountant and the chair of the Governance Committee, the areas of risk management overseen by the Governance Committee.

 

The Compensation Committee is responsible for the oversight of risk relating to the Company’s compensation and benefits programs. To satisfy these oversight responsibilities, the Compensation Committee regularly meets with and receives reports from the Company’s Chief Executive Officer and Chief Financial Officer to understand the financial, human resources and shareholder implications of compensation and benefits decisions.

 

Compensation Risk Analysis

 

Our Compensation Committee considers the risk to the Company associated with each component of our executive compensation program, namely base salary, and short-and-long term incentive compensation. In considering these risks, the Compensation Committee believes that the following factors, among others, reduce the likelihood of excessive risk taking in connection with executive compensation at USANA:

 

·                  Our compensation components provide a balanced mix of (i) cash and equity compensation, (ii) short-term and long-term incentive compensation, and (iii) financial and non-financial performance metrics;

·                  All U.S.-based employees participate in the same short-term incentive program with similar performance metrics;

·                  Maximum pay-out levels for short-term incentive compensation are generally capped at 100% of an executive officer’s and employee’s base salary;

·                  Our equity awards generally vest over five years and are only valuable if the Company performs and our stock price increases over time;

·                  We maintain strict internal controls over the determination and pay-out of each component of executive compensation;

·                  We do not enter into employment, severance or other management agreements with any of our executive officers that contain post-termination or change-in-control payments; and

·                  We generally do not provide significant perquisites or personal benefits to our executive officers.

 

Based on the Compensation Committee’s review of these factors and others, the Committee does not believe that the Company’s executive compensation program creates risks that are reasonably likely to have a material adverse effect on the Company.

 

Board Committee Charters

 

A written charter has been adopted for each of the Audit Committee, Compensation Committee and Governance and Nominating Committee. Copies of the Audit Committee Charter, Compensation Committee Charter, and Governance and Nominating Committee Charter are available, free of charge, on the Company’s website at www.usanahealthsciences.com under the “Corporate Governance” tab. The information contained on the website is not incorporated by reference in, or considered part of, this Proxy Statement.

 

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Corporate Governance Guidelines

 

The Company has adopted Corporate Governance Guidelines that outline the Company’s corporate governance policies and principles. The Company’s Corporate Governance Guidelines are available, free of charge, on the Company’s website at www.usanahealthsciences.com under the “Corporate Governance” tab.

 

Code of Ethics

 

We have adopted a code of ethics that applies to all of our directors, officers (including our Chief Executive Officer and Chief Financial and Accounting Officer), and employees. We require that all of our directors, officers and employees certify on an annual basis that they are in compliance with the code. A copy of the code of ethics is available on the corporate governance section of our web site at www.usanahealthsciences.com.  In the event the Company makes any amendments to, or grants any waivers of, a provision of its code of ethics that applies to the principal executive officer, principal financial officer or principal accounting officer of the Company that requires disclosure under applicable SEC rules, the Company intends to disclose such amendment or waiver and the reasons therefor on a Current Report on Form 8-K or on its next periodic report filed under the Exchange Act.

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

The Compensation Committee during fiscal 2010 was composed of Ronald S. Poelman, Chairman, Robert Anciaux and Jerry G. McClain.  All members of the Compensation Committee are independent directors.  No member of the Company’s Compensation Committee is a current or former officer or employee of the Company or any of its subsidiaries, or had any relationship requiring disclosure by Item 404 of Regulation S-K.  Additionally, no director or executive officer of the Company is a director or executive officer of any other corporation that has a director or executive officer who is also a director of the Company.

 

EXECUTIVE OFFICERS

 

The executive officers of USANA at January 1, 2011, and as of the date of this Proxy Statement were:

 

Name		Position
Myron W. Wentz, Ph.D.		Chairman of the Board
David A. Wentz		Chief Executive Officer
Fred W. Cooper, Ph.D.		President and Chief Operating Officer
Jeffrey A. Yates		Vice President and Chief Financial Officer
Kevin G. Guest		Chief Marketing Officer
Mark H. Wilson		Executive Vice President of Sales
Deborah Woo		Executive Vice President of Sales
Timothy E. Wood, Ph.D.		Executive Vice President of Research and Development
Roy W. Truett		Chief Information Officer
James H. Bramble		General Counsel and Corporate Secretary

 

Biographical information for Myron W. Wentz is included above with the other nominees for director.  The following information is provided for each of our other executive officers.

 

David A. Wentz, 40, Chief Executive Officer.  Mr. Wentz joined USANA as a part-time employee in 1992.  He has been a full-time employee since March 1994.  From 1993 until April 2004, he was a member of the Company’s Board of Directors.  Mr. Wentz was appointed Chief Executive Officer in July 2008.  He served as President from July 2002 to July 2008 and previously served as the Company’s Executive Vice President from October 2001 to July 2002.  He served as the Company’s Senior Vice President of Strategic Development from

 

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June 1999 to October 2001, and as the Company’s Vice President of Strategic Development from August 1996 to June 1999.  Mr. Wentz received a B.S. in Bioengineering from the University of California, San Diego.  Mr. Wentz is the son of Dr. Wentz, who is the founder of the Company and Chairman of the Company’s Board of Directors.

 

Fred W. Cooper, Ph.D., 48, President and Chief Operating Officer. Dr. Cooper was a consultant to the Company from 1997 until early 1998.  In February 1998 he joined the Company as Director of Special Projects.  From April 1998 until April 1999, he was employed as a full-time employee of the Company in the capacity of Executive Director of Information Technology, and from April 1999 until August 2000, as the Company’s Vice President of Information Technology.  From August 2000 until July 2003, Dr. Cooper was employed by the Company on a part-time basis as Vice President of Information Technology.  Thereafter, he became a full-time employee in July 2003 as the Company’s Vice President of Operations.  In January 2006, he was appointed as the Company’s Executive Vice President of Operations and served in this role until July 2008, when he was appointed President and Chief Operating Officer.  Prior to joining USANA, from April 1994 to February 1998, Dr. Cooper was the Director of Market Research and then the Director of Corporate Network Operations for Human Affairs International, a subsidiary of Aetna.  Dr. Cooper received a B.S. in Finance and a B.S. in Psychology from the University of Utah.  He earned a Ph.D. in Business Administration from the University of Utah.

 

Jeffrey A. Yates, 48, Vice President and Chief Financial Officer. Mr. Yates joined USANA in June 2008 as Vice President of Finance and was appointed Chief Financial Officer in September 2008. Mr. Yates has worked in the finance and accounting industries for more than 20 years. Prior to joining USANA, he served as executive vice president and chief financial officer of Deseret Book Company since 2004, and vice president and chief financial officer of Deseret Book Company since November 2003. Prior to that, he served as vice president and chief financial officer of Franklin Covey Stores and as a senior accountant for Price Waterhouse LLP. Mr. Yates received a B.S. in Accounting and a Master of Accountancy from Brigham Young University in Provo, Utah. He is a certified public accountant.

 

Kevin G. Guest, 48, Chief Marketing Officer.  Mr. Guest joined USANA on a part-time basis in April 2003, as Executive Director of Media and Events.  Following the Company’s acquisition of FMG Productions, a media, video, and event productions company that was founded by Mr. Guest, he became a full-time employee of the Company and was promoted to Vice President of Media and Events in February 2004.  In January 2006, he was appointed as the Company’s Executive Vice President of Marketing and served in that role until July 2008, when he was appointed Chief Marketing Officer.  Prior to joining USANA full-time, from 1992 to February 2004, Mr. Guest served as the Managing Partner of FMG Productions.  Mr. Guest has been part of the media production arena for more than 20 years and has received numerous awards for producing, directing, and writing.  He has overseen USANA’s audio, video, and event productions worldwide since the Company’s inception.   Mr. Guest earned a B.A. in Communications from Brigham Young University.

 

Mark H. Wilson, 46, Executive Vice President of Sales.  Mr. Wilson joined USANA in October 1996 as Director of Customer Relations.  Mr. Wilson served as the Company’s Executive Director of Customer Relations from 1998 to April 2000.  From April 2000 to January 2006, he served as the Company’s Vice President of Customer Relations.  In January 2006, he was appointed as the Company’s Executive Vice President of Customer Relations and served in this position until July 2008, when he was appointed Executive Vice President of North America.  In February of 2010, he was appointed as the Company’s Executive Vice President of Sales. Prior to joining USANA, from October 1994 to October 1996, Mr. Wilson was an owner/partner of Great Basin Marketing, a consulting company, specializing in call center start-up and operational management.  Prior to joining Great Basin Marketing, from July 1991 until October 1994, Mr. Wilson was Director of Inbound Order Express and Data Processing for Melaleuca, Inc., a manufacturer and network marketer of personal care products.  Mr. Wilson received a B.S. in Communications from the University of Utah.

 

Deborah Woo, 57, Executive Vice President of Sales. Mrs. Woo joined USANA as General Manager of USANA Hong Kong in 1999. Mrs. Woo served as the Company’s General Manager of USANA Hong Kong

 

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from 1999 to 2003. In 2003, she was promoted to Regional General Manager and became responsible for the Hong Kong, Taiwan, and Singapore markets. Mrs. Woo was subsequently promoted to Vice President of Greater China and East Asia in 2005. As a result of USANA’s strategic regional alignment in 2007, Mrs. Woo was appointed as Vice President of Greater China and North Asia. In 2008, Mrs. Woo was promoted to Executive Vice President of Asia. In February 2010, Mrs. Woo was promoted to Executive Vice President of Sales. Mrs. Woo entered the direct selling industry in 1990 as a Distributor Relations Manager for Amway Hong Kong. She later became Director of Sales for Caring International (Hong Kong) Limited in 1996 where she headed up multifunctional teams in operations, distributor relations, and marketing.

 

Timothy E. Wood, Ph.D., 62, Executive Vice President of Research and Development.  Dr. Wood joined USANA in June 1996 as Director of Research and Development.  Dr. Wood served in this role from June 1996 to June 1999, when he was appointed as the Company’s Vice President of Research and Development.  In January 2006, he was appointed as the Company’s Executive Vice President of Research and Development.  Before joining USANA, Dr. Wood served as Vice President of Research and Development for AgriDyne Technologies, Inc., formerly known as NPI, from 1992 to 1995, where he managed a team of approximately 25 scientists.  From 1980 to 1992, Dr. Wood served as Research Manager and Senior Scientist for AgriDyne Technologies.  Dr. Wood received a Bachelors Degree in Environmental Biology from the University of California, Santa Barbara.  He earned a Masters Degree in Environmental Sciences and a Ph.D. from Yale University.  He also earned an M.B.A. from Westminster College in Salt Lake City, Utah.  Dr. Wood plans to retire as an employee at the end of March 2011, but will continue his relationship with USANA as a consultant.

 

Roy W. Truett, 43, Chief Information Officer.  Mr. Truett joined USANA in April, 2003 as Executive Director of Information Technology.  He served in this role until July 2005, when he was appointed Vice President of Information Technology.  In July 2008, Mr. Truett was appointed Chief Information Officer.  Prior to joining USANA, Mr. Truett was employed at Humana Inc., where he was accountable for all IT systems related to corporate sales, marketing, and telemarketing activities.  Mr. Truett received a B.S. in business administration with an emphasis in information systems management from Francis Marion University in Florence, South Carolina and a Master of Business Administration from the University of Phoenix.

 

James H. Bramble, 40, General Counsel and Corporate Secretary.  Mr. Bramble joined USANA in March 1998 to manage the Compliance and Legal Departments. In April 2006 he was appointed Vice President and General Counsel. In July 2008, Mr. Bramble was also appointed Corporate Secretary.  Prior to joining USANA, Mr. Bramble was employed with Novus Services.  Mr. Bramble received a B.S. in political science with a minor in Spanish from the University of Utah in Salt Lake City, Utah. He received his Juris Doctorate in Law from the University of Utah College of Law.

 

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EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS

 

The following Compensation Discussion and Analysis describes the material elements of the compensation and benefit programs for our executive officers who are identified in the Summary Compensation Table (“Named Executive Officers”) of this Proxy Statement.

 

Role of Compensation Committee

 

The Executive compensation philosophy and practice of USANA has been developed through a collaborative effort of the Compensation Committee and the Company’s Chief Executive Officer, Chief Financial Officer, and the Vice President of Human Resources.  While these officers offer ideas, opinions, and proposals in Compensation Committee meetings, the Compensation Committee functions and votes independently from these officers.  The Compensation Committee is responsible for all changes to the Executive compensation philosophy and program.  The Compensation Committee consists of three members of USANA’s Board of Directors, all of whom are “independent” under the rules of the NYSE.  These members are appointed to the Compensation Committee by the Board of Directors.  The Compensation Committee acts under a written charter, which outlines the committee’s authority and responsibilities.

 

Role of Corporate Leadership in Assisting Compensation Committee

 

The Compensation Committee has the primary authority to determine the Company’s compensation philosophy and to establish compensation for the Company’s executives, including the Named Executive Officers (each also an “Executive” and collectively, “Executives”). It is responsible for ensuring that executive compensation decisions are thoroughly researched and implemented.  All of the Company’s Executives and employees participate in an annual performance review with their immediate supervisor, during which the Executive or employee receives input about his or her performance and contributions to the Company’s results for the period being assessed.  The Compensation Committee seeks input from the Company’s Chief Executive Officer, Chief Financial Officer and Vice President of Human Resources to identify key factors and to obtain information that is related to executive compensation.  These key factors and information generally involve the individual Executive’s level of responsibility, his or her years of experience, his or her current overall compensation level, the impact of current compensation practices on the Company’s financial statements, and the relationship between executive compensation and performance of the Company.

 

The Company’s Chief Financial Officer and Vice President of Human Resources take direction from and make suggestions to the Chairman of the Compensation Committee in establishing the quarterly Committee meeting agenda and in preparing the materials to be presented to the Compensation Committee.  These materials contain minutes from prior meetings, key items to be addressed, and background information to help the Compensation Committee in its decision-making process.

 

Compensation Philosophy and Objectives

 

The Company’s compensation philosophy, as approved by the Compensation Committee, is to establish and maintain Executive compensation programs that are designed to accomplish the following objectives:

 

·                  To attract and retain, through a fair and competitive compensation plan, Executives who have the intelligence, education, and experience that is required to effectively administer the affairs of the Company;

 

·                  To motivate our Executives to achieve certain financial and non-financial performance objectives for the benefit of our shareholders by tying components of their total compensation to individual and Company performance; and

 

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·                  To ensure that compensation practices do not impair USANA’s financial strength or future success.

 

The Compensation Committee intends to meet these objectives by utilizing and maintaining a balance among three major components of compensation: base salary, short-term incentive compensation (cash bonus), and equity compensation.  The Committee believes that these three components provide the appropriate framework to attract, retain and motivate our Executives, and align a significant portion of Executive compensation with short- and long-term performance objectives that drive shareholder value.  As shown in the compensation tables following this report, our Executives do not receive retirement benefits, severance arrangements, deferred compensation opportunities, or other perquisites that are commonly provided to executives of similarly sized companies.

 

Compensation Consultants

 

During 2010, we did not engage or consult with a compensation consultant in connection with rendering decisions on Executive compensation.  In the past, however, the Compensation Committee has engaged Frederic W. Cook & Co., Inc. (“FWC”), an independent executive compensation consulting firm, to advise and make recommendations regarding USANA’s Executive compensation program. During 2010, the Compensation Committee utilized the following materials, along with other resources and tools, to render compensation decisions for 2010: (i) surveys and reports of executive compensation paid by public companies, with characteristics similar to USANA, on a national basis; and (ii) surveys of executive compensation paid by certain of the Company’s direct competitors, consisting of both public and private companies, on a local and national basis.

 

Components of Compensation

 

Base Salary

 

Base salary represents the fixed component of Executive compensation.  It is designed to compensate our Executives fairly and competitively at levels necessary to attract, retain and motivate qualified executives in our industry. Consistent with this philosophy, the Compensation Committee, on an annual basis, evaluates our Executives’ base salaries.  The Committee considers (i) the Executive’s scope of responsibilities, maturity in role, demonstrated level of performance, accomplishments and contributions to the Company; (ii) the performance of USANA, both financially and operationally; (iii) current market data and salary levels for each Executive’s particular position; and (iv) the total compensation paid to each Executive. The Committee then renders a decision for each Executive’s base salary based on the total mix of the foregoing information.

 

As part of its 2010 Executive compensation evaluation, the Compensation Committee, after reviewing the information outlined above, approved the Executives’ base salaries from July 2010 through June 2011 as follows:

 

Executive		Appointed Office		2009-2010 Base Salary ($)			2010 — 2011 Base Salary ($)
David A. Wentz		Chief Executive Officer		$	600,000		$	600,000
Fred W. Cooper, Ph.D.		President and Chief Operating Officer		$	570,000		$	587,100
Jeffrey A. Yates		Chief Financial Officer		$	280,000		$	310,800
Mark H. Wilson		Executive Vice President of Sales		$	505,000		$	538,125	*
Deborah Woo		Executive Vice President of Sales		$	407,125		$	442,074	*

 

* Mr. Wilson’s and Mrs. Woo’s responsibilities were increased during 2010. Accordingly, the Compensation Committee approved an additional increase in the base salaries for Mr. Wilson and Mrs. Woo in 2010.

 

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As he did in 2009, in 2010 David Wentz recommended that the Compensation Committee not increase his base salary, despite the committee’s determination that an increase was warranted.  The Compensation Committee accepted Mr. Wentz’s recommendation and did not increase his base salary. With respect to each of the other Executives identified in the table, the Compensation Committee determined that the increases to such Executives’ base salaries were reasonable and necessary to ensure that the compensation we offer to our Executives is fair and competitive. The actual base salaries paid to our Executives during the year ended January 1, 2011 are reflected in column (c) of the Summary Compensation Table of this Proxy Statement.

 

Non-Equity Incentive Plan Compensation

 

We offer our Executives non-equity incentive plan compensation in the form of a cash bonus that is based on USANA’s achievement of certain financial and non-financial performance objectives during the applicable year. Cash bonuses are based on a percentage of the Executive’s base salary. Each year, the Compensation Committee sets the range of the cash bonus for which each Executive is eligible and sets the performance objectives on which cash bonuses for that year will be based.

 

2010 Non-Equity Incentive Plan and Awards

 

In 2010, the Compensation Committee approved the 2010 Executive Bonus Plan (the “2010 Bonus Plan”) to Executives of the Company, including certain of the Named Executive Officers. Cash bonuses under this plan were based on the achievement of the performance objectives set out in the table below, which consisted of objectives related to growth in sales and the improvement of operating margins.  Each objective was assigned a relative weight and contained a minimum and maximum performance level, all as disclosed in the table below. The extent to which an Executive was entitled to a bonus under the 2010 Bonus Plan depended on the product of (i) the weighting of the respective objective, and (ii) the performance level that was attained for the respective objective. Under the 2010 Bonus Plan, Executives were eligible to receive a cash bonus of between zero and 100% of their base salary, depending on the performance of USANA. Each Executive’s target bonus percentage under the 2010 Bonus Plan was 50% of the Executive’s base salary.

 

The actual performance objectives (including the minimum threshold, maximum threshold and weighting of each objective), as well as the actual performance delivered by the Company in 2010, were as follows:

 

Performance Objective Related to Net Sales Growth		Minimum Performance Threshold		Maximum Performance Threshold		Weighting		Performance Delivered by The Company
Increase in total active Associates		2	%	10	%	30	%	8.5	%
Increase in Customer Value (1)		2	%	16	%	15	%	0	%

 

Performance Objectives Related to Operating Margins		Minimum Performance Threshold		Maximum Performance Threshold		Weighting		Performance Delivered by The Company
Reducing Associate Incentives as a percentage of net sales		45.2	%	44.4	%	25	%	45.2	%
Reducing Selling, General and Administrative Expense as a percentage of net sales		23.5	%	21.9	%	15	%	21.6	%
Measurable Improvement in Inventory Management(2)			(2)		(2)	15	%		(2)

 

(1)          This objective is defined as and measured by improvement in Associate retention and increased Associate purchases on a monthly basis.

 

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(2)          This objective includes, but is not limited to, improving operating margins through (i) reducing scrap, (ii) improving inventory turns, (iii) reducing air shipment of product, and (iv) eliminating low selling products.  This objective does not have a specific minimum or maximum performance threshold and is measured by a combination of the foregoing factors.  Although not displayed in the table, the Company’s performance under this objective in 2010 was near the target performance threshold.

 

Shortly after the end of fiscal 2010, the Compensation Committee reviewed the foregoing performance objectives and evaluated the actual performance delivered by the Company in 2010.  The Compensation Committee noted that the Company:

 

·                  achieved the objective related to increased active Associates at above the target threshold, but below the maximum threshold;

·                  achieved the objective related to reducing Associate incentives expense at the minimum threshold;

·                  achieved the objective related to reduced SG&A expense at a level beyond the maximum threshold; and

·                  achieved the objective related to improvement in inventory management at near the target threshold.

 

Based on the Compensation Committee’s review of the Company’s performance and the weighting of each objective accomplished, the Compensation Committee determined that the eligible Executives had earned a cash bonus of 53% of base salary under the 2010 Bonus Plan.  The Compensation Committee also noted during its evaluation that the level of cash bonus earned was slightly greater than the target level of 50% of base salary, which was set by the Compensation Committee upon adopting each performance objective under the 2010 Bonus Plan early in 2010.  The actual cash bonuses paid to our Executives under the 2010 Bonus Plan are reflected in column (g) of the Summary Compensation Table of this Proxy Statement.

 

2011 Non-Equity Incentive Plan

 

For 2011, the Compensation Committee approved the 2011 Executive Bonus Plan (the “2011 Bonus Plan”), which is based on the achievement of one universal Company performance objective: increasing the number of active Associates and Preferred Customers (“Active Customers”) in each of the Company’s markets without sacrificing profitability (the “2011 Performance Objective”). The Compensation Committee approved the 2011 Performance Objective to align the focus of the Company’s Executives on growing the number of Active Customers in 2011 and, ultimately, growing sales.  This performance objective has three components: (i) regional and/or market Active Customer growth; (ii) weighting of Active Customer growth by market; and (iii) required levels of Company profitability.  The extent to which an Executive will receive a bonus under the 2011 Bonus Plan will depend on the product of these three components. Each component is discussed below.

 

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·                  Regional / Market Active Customer Growth

 

The 2011 Performance Objective establishes escalating growth levels for Active Customers in each of the Company’s regions and certain markets, as set forth in the table below. For a few of the Company’s Executives, these growth levels are tied to other individual markets, as opposed to the regions noted below. The regional growth levels are as follows:

 

Region and/or Market		Minimum Growth Level		Minimum to Target Growth Level		Target Growth Level		Target to Maximum Growth Level		Maximum Growth Level
North America		0% - 1%		1% - 4%		4%-8%		8% - 12%		Above 12%
Asia Pacific (excluding Hong Kong and China)		0% - 1%		1% - 4%		4%-8%		8% - 12%		Above 12%
China (1)		$40 - $45 million		$45 - $55 million		$55 - $67 million		$67 - $80 million		Above $80 million

 

(1)          In light of our recent entry into China through our subsidiary, BabyCare Ltd., and the requirement for us to conduct our operations in China through BabyCare and its business model, the performance requirements for China are measured as a target for actual U.S. dollar sales as opposed to a percentage of Active Customer growth.

 

·                  Weight of Associate Growth

 

In addition to requiring growth in the regions and/or markets noted above, the 2011 Bonus Plan weighs (or rewards) growth in the applicable region or market differently for many of our Executives, based on the significance of the region or market to the Executive’s overall jurisdictional area of responsibility. For example, Mr. Wentz’s bonus plan is weighted as follows: (i) 50% is tied to growth in North America; (ii) 20% is tied to growth in Asia Pacific; and (iii) 30% is tied to growth in China. The weighting of Dr. Cooper’s and Mr. Yates’ bonus plans, however, is slightly different from Mr. Wentz’s with: (i) 40% tied to growth in North America; (ii) 20% tied to growth in Asia Pacific; and (iii) 40% tied to growth in China. For Mr. Wilson and Mrs. Woo, the weighting of their 2011 Bonus Plans is tied to growth in certain individual markets, or a combination of individual markets, in their jurisdictional areas of responsibility.

 

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·                  Required Level of Profitability

 

The intent of the 2011 Bonus Plan is to reward growth in Active Customers, and ultimately sales, without sacrificing our profitability. As such, the 2011 Bonus Plan contains several thresholds for profitability, which are all measured by earnings from operations (as a percentage of net sales) and are set out in the table below. As the table indicates, if earnings from operations decrease below the required level, the Executive’s eligibility to obtain a bonus under the 2011 Bonus Plan (notwithstanding the Company’s achievement of the required customer growth level) decreases as well.

 

Earnings from Operations Threshold (% of net sales)		Eligibility to Participate in 2011 Bonus Plan
12.7% and above		100% eligible
12.7% - 12.5%		90% eligible
12.5% - 12.3%		80% eligible
12.3% - 12.1%		50% eligible
12.1% and below		Not eligible

 

·                  Executive’s Bonus Potential

 

Under the 2011 Bonus Plan, Executives are eligible to receive a cash bonus of between zero and 100% of their base salary, depending on the product of the foregoing components of the 2011 Bonus Plan. Each Executive’s target bonus percentage under the 2011 Bonus Plan is 50% of the Executive’s base salary. Future estimated payouts under the 2011 Bonus Plan are reflected in the Grants of Plan-Based Awards table of this Proxy Statement.

 

2010 Discretionary Cash Bonus for BabyCare, Ltd. Acquisition

 

After the closing of the Company’s acquisition of BabyCare, Ltd. in August 2010, the Compensation Committee awarded a discretionary cash bonus to certain Executives who were significantly involved in the acquisition and who delivered exceptional performance throughout the acquisition process. The cash bonus awarded to each Executive is set out below and is also reflected in column (d) of the Summary Compensation table of this Proxy Statement:

 

Executive		Cash Bonus Awarded
David A. Wentz		$	100,000
Fred W. Cooper		$	90,000
Jeffrey A. Yates		$	100,000
Deborah Woo		$	15,000

 

Equity Compensation

 

Equity compensation is an integral part of USANA’s compensation philosophy.  We believe that equity grants that vest over a period of years tie a portion of our Executives’ compensation to the Company’s long-term performance and, thereby, align the interests of our Executives with the interests of our shareholders.  Our equity compensation program delivers compensation to Executives only when the Company performs and the value of the Company’s stock increases.  USANA provides equity-based compensation primarily through the issuance of Stock-Settled Stock Appreciation Rights (“SSARs”). Grants of equity awards are made for both Executives and all other eligible employees at regular Compensation Committee meetings and at special meetings, as needed.  The effective date for such grants is customarily the date of the Compensation Committee’s meeting at which the particular grant is approved.

 

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During the last few years, the Compensation Committee’s philosophy has been to issue SSARs to our Executives on an annual basis under the USANA 2006 Equity Incentive Award Plan (the”2006 Plan”).  Under this philosophy, the Compensation Committee utilized lower awards of SSARs on a more frequent basis to drive individual and Company performance.  In 2008, however, this philosophy changed and the Compensation Committee determined that large, intermittent, SSAR awards were more appropriate and consistent with the objectives of driving long-term Company performance as well as individual Executive performance.  After reaching this conclusion, the Compensation Committee, in July 2008, approved the issuance of a SSAR award to each of our Executives. The awards vest annually in equal installments over a 5-year period. The grant price for these awards, like all Company equity incentive awards, was the fair market value of the award as of the date of grant as determined by the closing price of the Company’s common stock on the date of grant.

 

In April, 2010, the Compensation Committee approved the issuance of another SSAR award to each of our Executives.  The intent of the 2010 awards is to supplement and extend the awards issued in 2008.  The 2010 awards vest in two equal installments in April 2014, and April 2015. After the 2008 awards complete vesting and expire in 2013, the 2010 awards will begin to vest in 2014 and expire at the end of 2015.  The grant price for the 2010 awards, like all Company equity incentive awards, was the fair market value of the award as of the date of grant as determined by the closing price of the Company’s common stock on the date of grant.  The details of the 2010 awards are reflected in column (j) of the Grants of Plan Based Awards table of this Proxy Statement.

 

Other Compensation

 

Other than as described above, USANA does not at this time provide benefits to its Executives that are different from or in addition to those that are provided to its general employees.

 

Retirement: Executives may participate in Company sponsored 401(k) retirement plans on the same terms and conditions, including Company matching provisions, as other employees.  For the year ended January 1, 2011 the Company contributed matching funds totaling $907,550 to our 401(k) plan in which all eligible employee participants shared. During 2010, each of our Executives participated in our 401(k) plan and shared matching funds totaling $71,855. We provide no other retirement benefits to our Executives.

 

Severance: USANA has no severance agreements or contracts with any of its Executives that contain post-termination or change-in-control payment provisions.

 

Perquisites:  It is our general practice not to provide significant perquisites or personal benefits to our Executives. The Compensation Committee, however, retains the discretion to consider and award reasonable perquisites or personal benefits to Executives as necessary to accomplish the objectives under our compensation philosophy.  In this regard, it should be noted that we do not currently provide pension arrangements, post-retirement health coverage, or similar benefits for our Executives or employees.  In 2010, we paid health, life, and disability insurance premiums on behalf of our Executives, all on the same terms as those that we provide to all of the Company’s employees.

 

Insurance Plans and Other Benefits:  We provide insurance plans and other benefits to our Executives that are similar to those plans and benefits that are customarily provided to general employees of the Company.

 

Indemnification:  Article VI of our Amended and Restated Articles of Incorporation and Article 5 of our Bylaws provide for indemnification of our directors, officers, employees, and other agents to the extent and under the circumstances permitted by the Utah Business Corporation Act.  We have entered into agreements with our directors and officers that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers to the fullest extent allowed.  Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”), may be permitted to directors, officers, or persons controlling us under the foregoing provisions, the SEC has stated that such indemnification is against public policy, as expressed in the Securities Act, and, therefore, such indemnification provisions may be unenforceable.

 

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Section 162(m) Treatment Regarding Performance-Based Equity Awards

 

Under Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”), a public company is generally denied deductions for compensation paid to the chief executive officer and the next four most highly compensated executive officers to the extent the compensation for any such individual exceeds $1,000,000 for the taxable year. The Company’s executive compensation programs are designed to preserve the deductibility of compensation payable to executive officers, although deductibility will be only one among a number of factors considered in determining appropriate levels or types of compensation.

 

REPORT OF THE COMPENSATION COMMITTEE

 

The Compensation Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management.  Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

Respectfully submitted by the members of the Compensation Committee:

 

Ronald S. Poelman (Chair)

Jerry G. McClain

Robert Anciaux

 

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SUMMARY COMPENSATION TABLE

 

The following table summarizes all compensation paid to our Named Executive Officers in each of the three most recently completed fiscal years.

 

(a) Name and Principal Position		(b) Year		(c) Salary ($)			(d) Bonus ($)(1)			(e) Stock Awards ($)		(f) Option Awards ($)(2)			(g) Non-Equity Incentive Plan Compensation ($)(3)			(h) Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)		(i) All Other Compensation ($)(4)			(j) Total ($)
Myron W. Wentz		2010		—			—			—		—			—			—		—			—
Chairman		2009		—			—			—		—			—			—		—			—
		2008		—			—			—		$	4,364,000		—			—		—			$	4,364,000
David A. Wentz		2010		$	588,462		$	100,000		—		$	957,480		$	311,885		—		$	8,575		$	1,966,402
Chief Executive Officer		2009		$	553,846		—			—		—			$	160,616		—		$	11,752		$	726,214
		2008		$	541,395		—			—		$	1,571,040		$	197,308		—		$	19,261		$	2,329,004
Jeffrey A. Yates		2010		$	295,045		$	100,000		—		$	670,236		$	156,374		—		$	8,575		$	1,230,230
Vice President & Chief Financial Officer		2009		$	264,832		—			—		—			$	68,856		—		$	8,575		$	342,263
		2008		$	136,446		—			—		$	654,600		$	51,850		—		$	2,019		$	844,915
Fred W. Cooper		2010		$	578,353		$	90,000		—		$	1,364,409		$	306,527		—		$	8,575		$	2,347,864
President and COO		2009		$	559,846		—			—		—			$	179,427		—		$	12,236		$	751,509
		2008		$	457,269		—			—		$	1,440,120		$	222,690		—		$	17,091		$	2,137,170
Deborah Woo(5)		2010		$	430,073		$	15,000		—		$	1,021,312		$	202,292		—		$	104,457		$	1,773,134
Executive Vice President of Sales		2009		$	397,056		—			—		—			$	191,172		—		$	96,282		$	684,510
		2008		$	338,345		—			—		$	1,047,360		$	277,441		—		$	81,145		$	1,744,291
Mark H. Wilson		2010		$	528,334		—			—		$	837,795		$	280,017		—		$	8,575		$	1,654,721
Executive Vice President of Sales		2009		$	502,462		—			—		—			$	125,615		—		$	8,575		$	636,652
		2008		$	413,231		—			—		$	1,309,200		$	106,466		—		$	15,306		$	1,844,203

 

(1)                                  Reflects a cash discretionary cash bonus paid during 2010 to certain Executives who were significantly involved in the Company’s acquisition of BabyCare, Ltd and who delivered exceptional performance throughout the acquisition process.

 

(2)                                  Amounts in this column reflect the grant date fair value of SSARs issued to the Executives for the fiscal years ended January 1, 2011, and January 3, 2009 computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. In computing these amounts, the Company ignored the impact of the forfeiture rate relating to service-based vesting conditions. These amounts do not represent the actual amounts paid to or realized by the Executive for these awards during the applicable fiscal year. There were no SSARs issued to Executives during the fiscal year ended January 2, 2010. Assumptions used in the calculation of these amount are included in Note K to the Company’s consolidated financial statements that are included in the Company’s Annual Report on Form 10-K for the year ended January 1, 2011.

 

(3)                                  Reflects amounts paid in fiscal 2011 for performance realized in fiscal year 2010, under the Company’s short-term incentive plan (cash bonus) discussed in the Compensation Discussion and Analysis section of this Proxy Statement.

 

(4)                                  Reflects employer’s matching contribution to the Executive’s 401(k) plan, except in the case of the compensation paid to Mrs. Woo, which is set out in note (5) below.

 

(5)                                  Mrs. Woo is our Executive Vice President of Sales and resides in Hong Kong. In connection with Mrs. Woo’s overseas employment, column (i) reflects: (1) $65,907 paid by the Company to Mrs. Woo as retirement compensation pursuant to local law; (2) $19,275 paid by the Company to Mrs. Woo for a housing allowance, which is a customary allowance in Hong Kong; and (3) $19,275 paid by the Company to Mrs. Woo for a transportation allowance, which is a customary allowance in Hong Kong.

 

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GRANTS OF PLAN-BASED AWARDS

 

The following table contains information regarding equity awards granted to the Named Executive Officers during the fiscal year ended January 1, 2011 and the estimated or targeted payouts under the 2011 Bonus Plan described above.

 

																					(j)
																			(i)		All other
																			All other		option		(k)
																			stock		awards:		Exercise			(l)
				Estimated future payouts under									Estimated future payouts under						awards:		Number of		or base			Grant date
				non-equity incentive plan awards (1)									equity incentive plan awards						Number of		securities		price of			fair value of
(a) Name		(b) Grant Date		(c) Threshold ($)			(d) Target ($)			(e) Maximum ($)			(f) Threshold ($)		(g) Target ($)		(h) Maximum ($)		shares of stock or units (#)		underlying options (#)(2)		option awards ($/Sh)(3)			stock and option awards ($)
Myron W. Wentz				—			—			—			—		—		—		—		—		—			—
David A. Wentz		N/A		$	120,000		$	300,000		$	600,000		—		—		—		—		60,000		$	35.47		$	957,480
Jeffrey A. Yates		N/A		$	62,160		$	155,400		$	310,800		—		—		—		—		42,000		$	35.47		$	670,236
Fred W. Cooper		N/A		$	117,400		$	293,550		$	587,100		—		—		—		—		85,500		$	35.47		$	1,364,409
Deborah Woo		N/A		$	88,415		$	221,037		$	442,074		—		—		—		—		64,000		$	35.47		$	1,021,312
Mark H. Wilson		N/A		$	107,625		$	269,062		$	538,125		—		—		—		—		52,500		$	35.47		$	837,795

 

(1)                                  There is no guaranteed payment to our Executives under the 2011 Bonus Plan. As such, if the minimum performance objectives are not achieved, our Executives will receive no payout under the 2011 Bonus Plan.  The amounts shown in column (c) reflect the minimum payout level under the 2011 Bonus Plan, which is 20% of the Executive’s base salary.  The amounts shown in column (d) reflect the target payout, which is 50% of the Executive’s base salary.  The amounts shown in column (e) reflect 100% of the Executive’s base salary, which is the maximum payout that can be obtained under the 2011 Bonus Plan.

 

(2)                                  All equity awards granted in 2010 were SSARs and granted under the 2006 Equity Incentive Award Plan.

 

(3)                                  All equity awards were granted at the closing stock price on the date of grant.

 

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

The following table includes certain information with respect to the value of all equity awards previously granted to the Named Executive Officers at the end of the fiscal year ended January 1, 2011.

 

		Option awards (1)											Stock Awards
(a) Name		(b) Number of securities underlying unexercised options (#) exercisable		(c) Number of securities underlying unexercised options (#) unexercisable		(d) Equity incentive plan awards: Number of securities underlying unexercised unearned options (#)		(e) Option exercise price ($)			(f) Option expiration date		(g) Number of shares or units of stock that have not vested (#)		(h) Market value of shares or units of stock that have not vested ($)		(i) Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)		(j) Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)
Myron W. Wentz (2)		280,000		—		—		$	39.18		5-Dec-15		—		—		—		—
		200,000		300,000		—		$	26.06		21-Jan-14
David A. Wentz (3)		—		25,000		—		$	39.14		30-Apr-11		—		—		—		—
		21,000		14,000		—		$	40.59		19-Oct-12
		72,000		108,000		—		$	26.06		21-Jan-14
		—		60,000		—		$	35.47		27-Oct-15
Jeffrey A. Yates (3)		—		45,000		—		$	26.06		21-Jan-14		—		—		—		—
		—		42,000		—		$	35.47		27-Oct-15
Fred W. Cooper (3)		—		6,000		—		$	37.60		26-Jul-11		—		—		—		—
		—		8,800		—		$	40.59		19-Oct-12
		—		99,000		—		$	26.06		21-Jan-14
		—		85,500		—		$	35.47		27-Oct-15
Deborah Woo (3)		10,000		5,000		—		$	37.60		24-Oct-11		—		—		—		—
		9,600		6,400		—		$	40.59		19-Oct-12
		—		72,000		—		$	26.06		21-Jan-14
		—		64,000		—		$	35.47		27-Oct-15
Mark H. Wilson (3)		—		6,000		—		$	37.60		26-Jul-11		—		—		—		—
		—		8,800		—		$	40.59		19-Oct-12
		—		90,000		—		$	26.06		21-Jan-14
		—		52,500		—		$	35.47		27-Oct-15

 

(1)                                  All awards vest 20% annually, beginning on the first anniversary of the date of grant, except those grants which are described in notes (2) and (3) below.

 

(2)                                  The initial 20% of the grant of 500,000 SSARs to Dr. Wentz vested on April 1, 2008 instead of July 21, 2008.

 

(3)                                  The grant of 60,000 SSARs to Mr. Wentz, 42,000 to Mr. Yates, 85,500 to Dr. Cooper, 64,000 to Mrs. Woo, and 52,500 to Mr. Wilson vest 50% in April 2014 and 50% in April 2015.

 

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