STOCK BASED COMPENSATION AND INCENTIVE PERFORMANCE PLANS

The Company has two shareholder-approved plans, the 2002 Long-Term Incentive and Stock Award Plan and the 2000 Directors Stock Plan, under which the Company’s officers, senior management, other key employees, consultants and directors may be granted options to purchase the Company’s common stock or other forms of equity-based awards.

2002 Long-Term Incentive and Stock Award Plan, as amended. In November 2002, our stockholders approved the 2002 Long-Term Incentive and Stock Award Plan. An aggregate of 1,600,000 shares of common stock were originally reserved for issuance under this plan. At various Annual Meetings of Stockholders, including the 2011 Annual Meeting, the plan was amended to increase the number of shares issuable to 10,750,000 shares. The plan provides for the granting of stock options, stock appreciation rights, restricted stock, restricted share units, performance shares, performance share units and other equity awards to employees, directors and consultants. Awards denominated in shares of common stock other than options and stock appreciation rights will be counted against the available share limit as 2.07 shares for every one share covered by such award. All of the options granted to date under the plan have been incentive or non-qualified stock options providing for the exercise price equal to the fair market price at the date of grant. Effective December 1, 2005, stock option awards granted under the plan expire 7 years after the date of grant; options granted prior to this date expired 10 years after the date of grant. Options and other stock-based awards vest in accordance with provisions set forth in the applicable award agreements. No awards shall be granted under this plan after December 1, 2015.

There were no options granted under this plan in fiscal years 2012 or 2011. During fiscal year 2010, options to purchase 173,289 shares were granted under this plan with an estimated fair value of $6.03 per share.

There were 258,923, 241,324 and 119,436 shares of restricted stock and restricted share units granted under this plan during fiscal years 2012, 2011 and 2010, respectively. Included in these grants during fiscal years 2012 and 2011 were 150,699 and 183,449, respectively, of restricted stock and restricted share units granted under the Company’s long-term incentive programs, of which 75,361 and 122,841, respectively, are subject to the achievement of minimum performance goals established under those programs (see “Long-term Incentive Plan,” below).

At June 30, 2012, 2,402,461 options and 416,162 unvested restricted stock and restricted share units were outstanding under this plan and there were 3,515,648 shares available for grant under this plan.

2000 Directors Stock Plan, as amended. In May 2000, our stockholders approved the 2000 Directors Stock Plan. The plan originally provided for the granting of stock options to non-employee directors to purchase up to an aggregate of 750,000 shares of our common stock. In December 2003, the plan was amended to increase the number of shares issuable to 950,000 shares. In March 2009, the plan was amended to permit the granting of restricted stock, restricted share units and dividend equivalents and was renamed. All of the options granted to date under this plan have been non-qualified stock options providing for the exercise price equal to the fair market price at the date of grant. Effective December 1, 2005, stock option awards granted under the plan expire 7 years after the date of grant; options granted prior to this date expire 10 years after the date of grant.

There were no options granted under this plan in fiscal years 2012, 2011, or 2010.

There were 40,000, 31,500, and 38,750 shares of restricted stock granted under this plan during fiscal years 2012, 2011 and 2010, respectively.

At June 30, 2012, 97,000 options and 71,247 unvested restricted shares were outstanding and there were 50,795 shares available for grant under this plan.

At June 30, 2012 there were also 80,972 options outstanding that were granted under two other prior Hain and Celestial Seasonings plans. Although no further awards can be granted under those plans, the options outstanding continue in accordance with the terms of the respective plans and grants.

There were 6,634,285 shares of Common Stock reserved for future issuance in connection with stock based awards as of June 30, 2012.

Compensation cost and related income tax benefits recognized in the Consolidated Statements of Income for stock based compensation plans were as follows:



	Fiscal Year ended June 30,
	2012		2011		2010
Compensation cost (included in selling, general and administrative expense)	$	8,290	$	9,031	$	6,979
Related income tax benefit	$	3,019	$	3,077	$	2,153

Stock Options

A summary of our stock option activity for the three fiscal years ended June 30, 2012 is as follows:



	2012		Weighted Average Exercise Price	2011		Weighted Average Exercise Price	2010		Weighted Average Exercise Price
Outstanding at beginning of year	3,497,752		$17.35	5,153,233		$20.42	5,568,667		$20.64
Granted	—		—	—		—	173,289		$18.20
Exercised	(914,119	)	$15.51	(899,681	)	$19.91	(126,713	)	$16.88
Canceled and expired	(3,200	)	$16.11	(755,800	)	$35.25	(462,010	)	$24.28
Outstanding at end of year	2,580,433		$18.00	3,497,752		$17.35	5,153,233		$20.42
Options exercisable at end of year	2,289,642		$18.55	2,811,784		$17.44	4,072,092		$21.10



	Fiscal Year ended June 30,
	2012		2011		2010
Intrinsic value of options exercised	$	23,798	$	10,275	$	373
Cash received from stock option exercises	$	14,179	$	17,912	$	2,139
Tax benefit recognized from stock option exercises	$	8,811	$	3,930	$	140

For options outstanding at June 30, 2012, the aggregate intrinsic value (the difference between the closing stock price on the last day of trading in the year and the exercise price) was $95,579 and the weighted average remaining contractual life was 3.1 years. For options exercisable at June 30, 2012, the aggregate intrinsic value was $83,552 and the weighted average remaining contractual life was 3.0 years. At June 30, 2012 there was $702 of unrecognized compensation expense related to stock option awards, which will be recognized over a weighted average period of approximately 1.0 year.

The fair value of stock options granted is estimated using the Black-Scholes option pricing model. The weighted average assumptions for options granted during the fiscal year ended June 30, 2010 were as follows:



Risk-free rate	2.38	%
Expected volatility	34.20	%
Expected life (years)	4.75
Dividend yield	0	%
Fair value at grant date	$6.03

Restricted Stock

Awards of restricted stock may be either grants of restricted stock or restricted share units that are issued at no cost to the recipient. For restricted stock grants, at the date of grant the recipient has all rights of a stockholder, subject to certain restrictions on transferability and a risk of forfeiture. For restricted share units, legal ownership of the shares is not transferred to the employee until the unit vests. Restricted stock and restricted share unit grants vest in accordance with provisions set forth in the applicable award agreements, which may include performance criteria for certain grants. The compensation cost of these awards is determined using the fair market value of the Company’s common stock on the date of the grant. Compensation expense for restricted stock awards with a service condition is recognized on a straight-line basis over the vesting term. Compensation expense for restricted stock awards with a performance condition is recorded when the achievement of the performance criteria is probable and is recognized over the performance and vesting service periods.

Non-vested Restricted Stock Activity — A summary of our restricted stock and restricted share units activity for the three fiscal years ended June 30, 2012 is as follows:



	2012		Weighted Average Grant Date Fair Value (per share)	2011		Weighted Average Grant Date Fair Value (per share)	2010		Weighted Average Grant Date Fair Value (per share)
Non-vested restricted stock and restricted share units – beginning of year	407,231		$22.43	410,553		$19.93	489,878		$21.73
Granted	235,824		$35.47	272,824		$26.10	158,186		$18.26
Vested	(136,031	)	$17.51	(256,554	)	$22.17	(209,398	)	$23.24
Forfeited	(19,615	)	$26.71	(19,592	)	$22.47	(28,113	)	$17.31
Non-vested restricted stock and restricted share units – end of year	487,409		$29.94	407,231		$22.43	410,553		$19.93



	Fiscal Year ended June 30,
	2012		2011		2010
Fair value of restricted stock and restricted share units granted	$	8,364	$	7,121	$	2,889
Fair value of shares vested	$	5,098	$	5,689	$	3,636
Tax benefit recognized from restricted shares vesting	$	1,914	$	2,253	$	1,347

At June 30, 2012, $7,608 of unrecognized stock-based compensation expense, net of estimated forfeitures, related to non-vested restricted stock awards is expected to be recognized over a weighted-average period of approximately 1.6 years.

On July 3, 2012, the Company entered into a Restricted Stock Agreement (the "Agreement") with Irwin D. Simon, the Company's Chairman and Chief Executive Officer. The Agreement provides for a grant of 400,000 shares of restricted stock (the "Shares"), the vesting of which is both market and time-based. With respect to the market condition, the Shares will satisfy the market condition in increments of 100,000 Shares each based on the Company's common stock achieving four share price targets. On the last day of any forty-five (45) consecutive trading day period during which the average closing price of the Company’s common stock on the NASDAQ Global Select Market equals or exceeds the following prices: $62.50, $72.50, $82.50 and $100.00, respectively, 100,000 Shares will have satisfied the market condition. The market conditions must be satisfied prior to June 30, 2017. Once each market condition has been satisfied, a tranche of 100,000 Shares will vest in equal amounts annually over a five year period. Except in the case of a change of control, termination without cause, death or disability (each as defined in Mr. Simon’s Employment Agreement), the unvested Shares are subject to forfeiture unless Mr. Simon remains employed through the applicable market and time vesting periods. The grant date fair value for each tranche was separately estimated based on a Monte Carlo simulation that calculated the likelihood of goal attainment and the time frame most likely for goal attainment. The total grant date fair value of the Shares was estimated to be $16,151, which is expected to be recognized over a weighted-average period of approximately 4.6 years.

Long-Term Incentive Plan

The Company adopted, beginning in fiscal 2010, the Executive Incentive Plan, which includes a long-term incentive program (the “LTI Plan”). The LTI Plan currently consists of two two-year performance-based long-term incentive plans (the “2011-2012 LTIP” and the “2012-2013 LTIP”) that provide for a combination of equity grants and performance awards that can be earned over the two year period. The initial two-year long-term incentive plan (the “2010-2011 LTIP”) concluded in fiscal 2011. Participants in the LTI Plan include our executive officers, including the Chief Executive Officer, and certain other key executives.

The Compensation Committee administers the LTI Plan and is responsible for, among other items, establishing the target values of awards to participants and selecting the specific performance factors for such awards. At the end of each performance period, the Compensation Committee determines, at its sole discretion, the specific payout to each participant. Such awards may be paid in cash and/or unrestricted shares of the Company’s common stock at the discretion of the Compensation Committee, provided that any such stock-based awards shall be issued pursuant to and be subject to the terms and conditions of the 2002 Long-Term Incentive and Stock Award Plan, as in effect and as amended from time to time. Upon the adoption of each two year plan, the Compensation Committee granted an initial award to each participant in the form of equity-based instruments (either restricted stock or stock options), for a portion of the individual target awards (the “Initial Equity Grants”). These Initial Equity Grants are subject to time vesting requirements, and a portion of the 2011-2012 LTIP and 2012-2013 LTIP related grants are also subject to the achievement of minimum performance goals. The Initial Equity Grants are expensed over the respective vesting periods on a straight-line basis. The payment of the actual awards earned at the end of the applicable performance period, if any, will be reduced by the value of the Initial Equity Grants.

The Compensation Committee determined that the target values set under the 2010-2011 LTIP were achieved and approved the payment of awards to the participants. The awards totaled $7,825 after deducting the value of the Initial Equity Grants and were settled by the issuance of 63,099 unrestricted shares of the Company’s common stock and $5,869 in cash in fiscal 2012. The Company has determined that the achievement of certain of the performance goals for the 2011-2012 LTIP and 2012-2013 LTIP are probable and, accordingly, recorded expense (in addition to the stock based compensation expense associated with the Initial Equity Grants) of $8,743 and $9,239 for the fiscal years ended June 30, 2012 and 2011, respectively, related to LTI plans.