United States Securities And Exchange Commission

Washington, D.C. 20549

(AMENDMENT NO.___)

Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material under Rule 14a-12

ULTA SALON, COSMETICS & FRAGRANCE, INC.

Payment of Filing Fee (Check the appropriate box):

þ		No fee required.

o		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	(1)		Title of each class of securities to which transaction applies:
	(2)		Aggregate number of securities to which transaction applies:
	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
	(4)		Proposed maximum aggregate value of transaction:
	(5)		Total fee paid:

o		Fee paid previously with preliminary materials.

o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	(1)		Amount Previously Paid:
	(2)		Form, Schedule or Registration Statement No.:
	(3)		Filing Party:
	(4)		Date Filed:

 

 

 

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 16, 2010

 

 

 

 

 

TO THE STOCKHOLDERS OF ULTA SALON, COSMETICS & FRAGRANCE, INC.:

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Ulta Salon, Cosmetics & Fragrance, Inc. (“Ulta” or the “Company”), a Delaware corporation, will be held on Wednesday, June 16, 2010, at 10:00 A.M. local time, at Ulta’s headquarters located at 1000 Remington Blvd., Bolingbrook, Illinois 60440, for the following purposes:

 

 

The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.

 

The Board of Directors has fixed the close of business on April 19, 2010, as the record date for the determination of stockholders entitled to notice of and to vote on the items listed above at this Annual Meeting and at any adjournment or postponement thereof.

 

By Order of the Board of Directors

 

 

Robert S. Guttman

Senior Vice President, General Counsel and Secretary

 

May 7, 2010

 

Important notice regarding availability of proxy materials
for Ulta’s 2010 Annual Meeting of Stockholders to be held on June 16, 2010:

 

The Proxy Statement and Annual Report to Stockholders on Form 10-K
for the year ended January 30, 2010 are available at http://ir.ulta.com.

 

Brokers cannot vote for Proposal 1 without your instructions.

 

YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, KINDLY MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE (WHICH IS POSTAGE PREPAID, IF MAILED IN THE UNITED STATES). EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL REVOKE YOUR PROXY AND VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES OF RECORD ARE HELD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.

TABLE OF CONTENTS

 

 

1000 Remington Blvd., Suite 120
Bolingbrook, IL 60440

 

 

PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 16, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Record Holders — If your shares are registered directly in your name with our Transfer Agent, American Stock Transfer & Trust Company, you are considered, with respect to those shares, the stockholder of record or Record Holder. As the stockholder of record, you have the right to grant your voting proxy directly to Ulta or to vote in person at the Annual Meeting. We have enclosed or sent a Proxy Card for you to use.

 

Beneficial Owner — If your shares are held in a brokerage account or by another nominee, you are considered the Beneficial Owner of shares held in street name, and these proxy materials are being forwarded to you automatically, along with a voting instruction card from your broker, trustee or nominee. As a Beneficial Owner, you have the right to direct your broker, trustee or nominee how to vote and are also invited to attend the Annual Meeting. Since a Beneficial Owner is not the stockholder of record, you may not vote these shares in person at the meeting unless you obtain a “legal proxy” from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the meeting. Your broker, trustee or nominee has enclosed or provided voting instructions for you to use in directing how to vote your shares. If you do not provide specific voting instructions to your broker by June 6, 2010 (10 days before the Annual Meeting), your broker can vote your shares with respect to “discretionary” items, but not with respect to “non-discretionary” items. The election of Directors is considered a non-discretionary item, while the ratification of the appointment of our independent registered public accounting firm is considered a discretionary item. On non-discretionary items for which you do not give your broker instructions, the shares will be treated as broker non-votes.

 

 

 

To ensure that your vote is recorded promptly, please vote as soon as possible, even if you plan to attend the Annual Meeting in person. Most stockholders have two options for submitting their votes:

 

 

For further instructions on voting, see your Proxy Card. If you attend the Annual Meeting, you may also submit your vote in person, and any previous votes that you submitted by mail will be superseded by the vote that you cast at the Annual Meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the Annual Meeting, you must obtain from the Record Holder a legal proxy issued in your name.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Over the course of Ulta’s history, the Board of Directors has developed corporate governance practices consistent with its duties of good faith, due care and loyalty, to help fulfill its responsibilities to our stockholders.

 

Board of Directors meetings and committees

 

During the fiscal year ended January 30, 2010, the Board of Directors held 19 meetings. Commencing fiscal year 2003, Mr. Eck became our Non-Executive Chairman and typically presides over meetings of the full Board as well as executive sessions. The Board of Directors has an audit committee, a nominating and corporate governance committee and a compensation committee. During fiscal year 2009, no director attended fewer than 75% of the aggregate meetings of the Board of Directors and of the committees on which he or she served that were held during the period for which he or she was a Director or committee member, respectively. Directors are invited and are expected to attend the Annual Meeting of Stockholders, and eight of our nine Directors then in office attended our 2009 Annual Meeting of Stockholders.

 

Committee Composition:  The following table provides the composition of each of our committees as of January 31, 2010:

 

 

 

 

 

Board leadership structure

 

We currently separate the roles of Chief Executive Officer and Chairman of the Board in recognition of the differences between these two roles. Our Board is led by an independent, non-executive Chairman. We believe that this leadership structure enhances the accountability of the Chief Executive Officer to the Board, strengthens the Board’s independence from management and ensures a greater role for the independent Directors in the oversight of our Company. In addition, separating these roles allows our Chief Executive Officer to focus her efforts on running our business and managing our Company in the best interests of our stockholders, while the Chairman provides guidance to the Chief Executive Officer and sets the agenda for Board meetings and establishes priorities and procedures for the work of the full Board. The Chairman presides over meetings of the full Board as well as executive sessions, which the Board generally holds several times a year, both telephonically and in conjunction with in-person meetings of the full Board. The Board recognizes that no single leadership model is right for all

companies and at all times and that, depending on the circumstances, other leadership models, such as combining the Chairman and Chief Executive Officer roles, might be appropriate. Accordingly, the Board periodically reviews its leadership structure.

 

Independence

 

Board member independence is an essential element of Ulta corporate governance. The Board of Directors has determined that each of the current non-employee Directors and each nominee for Director is free of any relationship that would interfere with his or her individual exercise of independent judgment with regard to Ulta. Lynelle P. Kirby, Chief Executive Officer, is currently the sole member of the Board of Directors that is not independent due to her office with Ulta. Carl “Chuck” Rubin, President and Chief Operating Officer effective May 10, 2010, is a candidate for the Board of Directors and would not be independent due to his office with Ulta. Each member of the nominating and corporate governance committee, compensation committee and audit committee satisfy the current independence requirements of NASDAQ and the SEC.

 

Board role in risk oversight

 

Our Board of Directors oversees an enterprise-wide approach to risk management, designed to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and enhance shareholder value. Management is responsible for the Company’s day-to-day risk management activities and processes, and our Board’s role is to engage in informed oversight of and provide direction with respect to such risk management activities and processes. The Board recognizes that a fundamental part of risk management is not only understanding the risks our Company faces and the steps management is taking to manage those risks, but also understanding what level of risk is appropriate for our Company. As such, the Board focuses on understanding the nature of our enterprise risks, including operational, financial, legal and regulatory, strategic and reputational risks, as well as the adequacy of our risk assessment and risk management processes. To facilitate such an understanding, the Board and its committees receive management updates on our business operations, financial results and strategy, and the Board discusses and provides direction with respect to risks related to those topics.

 

While the Board has the ultimate oversight responsibility for the risk management process, various committees of the Board also have responsibility for risk management. The audit committee oversees risks associated with financial accounting and audits, as well as internal control over financial reporting. The audit committee assists the Board in its oversight by discussing with management our Company’s risk assessment and management policies, the Company’s significant financial risk exposures and the actions taken by management to limit, monitor or control such exposures. The compensation committee oversees the risks relating to the Company’s compensation policies and practices. In setting compensation, the compensation committee strives to create incentives that encourage a level of risk-taking behavior consistent with the Company’s business strategy. The compensation committee also oversees the risks relating to the Company’s management development and leadership succession. The nominating and corporate governance committee oversees the implementation of the Company’s Code of Business Conduct and monitors compliance therewith.

 

Nominating and corporate governance committee

 

The nominating and corporate governance committee acts under a written charter that was approved by the Board of Directors and has been published under “Corporate Governance” in the Investor Relations section of the Ulta website at http://ir.ulta.com. The primary responsibility of the nominating and corporate governance committee is to recommend to the Board of Directors candidates for nomination as Directors and membership on committees of the Board. The committee reviews the performance and independence of each Director, and in appropriate circumstances, may recommend the removal of a Director for cause. The committee oversees the evaluation of the Board of Directors and makes recommendations to improve performance. The committee also recommends to the Board of Directors policies with respect to corporate governance. During fiscal year 2009, the nominating and corporate governance committee was composed of the following independent Directors:

Messrs. Heilbronn (Chairman), Lebow and Sisteron. Lorna Nagler, also an independent Director, joined the committee immediately following her election to the Board at the 2009 annual meeting. The Board of Directors has determined that each committee member qualifies as a “nonemployee director” under rules and regulations of the Securities and Exchange Commission (the “SEC”), as well as the independence requirements of NASDAQ. The nominating and corporate governance committee met three times during fiscal year 2009.

 

Nominating and corporate governance committee charter

 

The nominating and corporate governance committee charter identifies the roles and responsibilities that govern the nominating and corporate governance committee, such as:

 

 

Nomination process — qualifications

 

The nominating and corporate governance committee is responsible for reviewing the appropriate skills and characteristics required of Directors in the context of prevailing business conditions, and in its nominating committee capacity, for making recommendations regarding the size and composition of the Board of Directors. The objective of the nominating and corporate governance committee is to create and sustain a Board of Directors that brings to Ulta a variety of perspectives and skills derived from high-quality business and professional experience. Pursuant to its charter, the nominating and corporate governance committee annually assesses the experience, expertise, capabilities, skills and diversity of the members of the Board, individually and collectively, and considers these factors when evaluating Director candidates. In this regard, both the Board and the nominating and corporate governance committee believe that it is essential for Board members to represent diverse viewpoints based upon differences in professional experience, education, skill and other individual qualities and attributes that contribute to an active, effective Board. Although there are no specific minimum qualifications that a Director candidate must possess, the nominating and corporate governance committee recommends those candidates who possess the highest personal and professional integrity, have prior experience in corporate management and the industry, maintain academic or operational expertise in an area of our business and demonstrate practical and mature business judgment.

 

We will consider all stockholder recommendations for candidates for the Board of Directors and, to date, we have not received a timely Director nominee from a stockholder. Stockholders who want to suggest a candidate for consideration should send a written notice, addressed to the Corporate Secretary at our principal executive offices at 1000 Remington Blvd., Suite 120, Bolingbrook, IL 60440. Further details about the nomination process may be found in the answer to Question 14 above, entitled “Nomination of Directors — How do I submit a proposed Director nominee to the Board of Directors for consideration?”

This notice must include the following information for each candidate the stockholder proposes to nominate: (1) name, age, business address and residence address, (2) principal occupation or employment, (3) class and number of shares of capital stock beneficially owned by such candidate and (4) and any other information relating to the candidate that is required to be disclosed in solicitations for proxies for the election of Directors pursuant to applicable SEC rules. In addition, the stockholder giving such notice must include his or her (1) name and record address and (2) the class and number of shares such stockholder beneficially owns.

 

We also consider potential Director candidates recommended by current Directors, officers, employees and others. We may also retain the services of search firms to provide us with candidates, especially when we are looking for a candidate with a particular expertise, quality, skill or background. The nominating and corporate governance committee screens all potential candidates in the same manner, regardless of the source of the recommendation. Our review is typically based on any written materials provided with respect to potential candidates, and we review such materials to determine the qualifications, experience and background of the candidates. Final candidates are typically interviewed by members of the committee. In making its determinations, the committee evaluates each individual in the context of our Board of Directors as a whole, with the objective of assembling a group that can best perpetuate the success of our Company and represent stockholder interests through the exercise of sound judgment. After review and deliberation of all feedback and data, the committee makes a recommendation to the full Board of Directors regarding whom should be nominated by the Board of Directors.

 

Code of Business Conduct

 

All Ulta employees, officers and members of the Board of Directors must act ethically at all times and in accordance with the policies comprising the Ulta Code of Business Conduct. We demand full compliance with this policy from employees, officers and members of the Board of Directors, including our Chief Executive Officer, Chief Financial Officer and such other individuals performing similar functions. Moreover, all corporate employees, officers and members of the Board of Directors have signed a certificate acknowledging that they have read, understood and will continue to comply with the policy, and all corporate employees and officers are required to read and acknowledge this policy on an annual basis. Ulta includes the Code of Business Conduct in new hire materials for all corporate employees. The policy is published and any amendments or waivers thereto will be published under “Corporate Governance” in the Investor Relations section of the Ulta website located at http://ir.ulta.com.

 

Disclosure committee

 

The disclosure committee is a management committee that acts under a written charter approved by the audit committee. Its primary responsibility is to assist our Chief Executive Officer and Chief Financial Officer in fulfilling their responsibility for oversight of the accuracy and timeliness of our disclosures. Management and the disclosure committee have established disclosure controls and procedures designed to ensure that disclosures required by the SEC and other written information to be disclosed to the investment community are recorded, processed, summarized and reported accurately on a timely basis. These disclosure controls and procedures are monitored and evaluated for their effectiveness on a regular basis. The disclosure committee, in conjunction with management, reviews and approves the preparation of SEC filings and various documents distributed to the investment community containing financial information or other material information. The disclosure committee discusses all relevant information with our Chief Executive Officer and Chief Financial Officer and, if needed, the Board of Directors and the audit committee.

 

Stockholder communication

 

Any stockholder is free to communicate in writing with the Board of Directors on matters pertaining to Ulta by addressing their comments to the Board of Directors, c/o General Counsel, Ulta Salon, Cosmetics & Fragrance, Inc., 1000 Remington Blvd., Suite 120, Bolingbrook, IL 60440, or by e-mail at InvestorRelations@ulta.com. Our General Counsel will review all correspondence addressed to our Board of Directors, or any individual Director, for any inappropriate correspondence and correspondence more suitably directed to management. Our General

Counsel will forward appropriate stockholder communications to our Board of Directors prior to the next regularly scheduled meeting of our Board of Directors following the receipt of the communication. Our General Counsel will summarize all correspondence not forwarded to our Board of Directors and make the correspondence available to our Board of Directors for its review upon our Board of Directors’ request.

 

PROPOSAL ONE

 

 

Our Amended and Restated Certificate of Incorporation provides that our Board of Directors be divided into three classes designated Class I, Class II and Class III, with each class consisting, as nearly as possible, of one- third of the total number of Directors. Each class serves a three-year term with one class being elected at each year’s annual meeting of stockholders, beginning in 2008. Vacancies on our Board of Directors may be filled by persons elected by a majority of the remaining Directors. A Director elected by our Board of Directors to fill a vacancy, including a vacancy created by an increase in size of our Board of Directors, will serve for the remainder of the full term of the class of Directors in which the vacancy occurred and until that Director’s successor is elected and qualified.

 

The Board of Directors is presently composed of nine members, eight of whom are non-employee, independent Directors. Each Director was elected to the Board of Directors to serve until a successor is duly elected and qualified or until his or her death, resignation or removal. There are currently no vacancies. Messrs. Heilbronn and Lebow and Ms. Kirby are the Class III Directors whose terms expire in 2010. Mr. Lebow will not stand for re-election at this Annual Meeting. Mr. Heilbronn and Ms. Kirby are nominees for re-election, and Mr. Rubin is a nominee for election to the Board of Directors. Mr. Rubin, who is standing for election by the stockholders at this Annual Meeting for the first time, was first identified by a third-party search firm as an officer candidate in connection with the Company’s succession planning process. He was recommended as a candidate for the Board of Directors by the nominating and corporate governance committee. If elected at the Annual Meeting, each of the nominees would serve until the 2013 Annual Meeting of Stockholders and until their successors are elected and qualified, or until their death, resignation or removal. Messrs. Eck, Sisteron and Philippin are the Class I Directors with terms expiring in 2011, and Messrs. Defforey and DiRomualdo and Ms. Nagler are the Class II Directors with terms expiring in 2012.

 

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting will be required to approve the nominees for election and re-election. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this matter has been ratified.

Set forth below is biographical information for each nominee for election for a three-year term expiring at the 2013 Annual Meeting:

 

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE

 

Directors continuing in office until the 2011 Annual Meeting:

 

Directors continuing in office until the 2012 Annual Meeting:

 

 

The following table provides information related to the compensation of our non-employee Directors earned for fiscal 2009:

 

 

 

The following table sets forth the outstanding options held by our non-employee Directors as of January 30, 2010:

 

 

We strive to promote an ownership mentality among our key leadership and Board of Directors. As such, the Company utilizes equity compensation to encourage our Directors to maintain a stock ownership investment in the Company under appropriate circumstances. Additionally, during fiscal 2009 and upon the recommendation of the compensation committee, the Board approved the introduction of a cash compensation component in order to attract and retain certain qualified Directors. As shown in the above tables, during fiscal 2009 the Board approved an annual fee of $40,000 for each of Lorna E. Nagler and Charles Philippin, to be paid quarterly in arrears beginning in the third quarter of fiscal 2009. The Board also approved an option for Ms. Nagler to purchase 50,000 shares of our common stock, to be granted in three annual installments with each installment vesting equally over four years. During fiscal 2008, we granted Mr. Philippin an option to purchase 50,000 shares of our common stock for his services as a Director. These options vest equally over four years. Due to their significant share ownership, the other non-executive Directors did not receive fees or options for their services during fiscal 2009.

 

The audit committee of the Board of Directors has appointed Ernst & Young LLP as our independent registered public accounting firm for the fiscal year 2010, ending January 29, 2011. Services provided to Ulta by Ernst & Young LLP in fiscal year 2009 are described under “Fees to Independent Registered Public Accounting Firm” below. Additional information regarding the audit committee is provided on page 21.

 

Ernst & Young LLP has audited the financial statements of Ulta since 1997. Representatives of Ernst & Young LLP will be present at the Annual Meeting to respond to appropriate questions and to make such statements as they may desire.

 

Stockholder ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm is not required by our Bylaws or otherwise. However, the Board of Directors is submitting the selection of Ernst & Young LLP to the stockholders for ratification as a matter of good corporate governance practice. If the stockholders fail to ratify the selection, the audit committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the audit committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of Ulta and our stockholders.

 

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting will be required to ratify the selection of Ernst & Young LLP. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this matter has been ratified.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL TWO

 

FEES TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The following table sets forth the aggregate fees billed or expected to be billed by Ernst & Young LLP for professional services rendered for our fiscal years 2009 and 2008:

 

 

Audit Fees.  These amounts represent fees billed or expected to be billed by Ernst & Young LLP for professional services rendered for the audits of our annual financial statements for the fiscal years 2009 and 2008 and the reviews of the financial statements included in our quarterly reports on Form 10-Q. Fiscal 2008 audit fees includes the incremental audit work required for Ernst & Young LLP to provide their initial attestation regarding the effectiveness of our internal controls over financial reporting required by Section 404 of Sarbanes-Oxley.

 

Audit-Related Fees.  These amounts represent fees billed or expected to be billed by Ernst & Young LLP for professional services rendered that were not included under “Audit Fees” above.

Tax Fees.  These amounts represent fees billed or expected to be billed by Ernst & Young LLP for professional services rendered for tax compliance related matters. We have engaged a different service provider for tax compliance services effective with our fiscal 2007 tax year.

 

All Other Fees.  These amounts represent service fees relating to online research software.

 

The audit committee has approved all professional fees paid to Ernst & Young LLP. The audit committee has determined that the rendering of tax services by Ernst & Young LLP is compatible with maintaining its independence.

 

The audit committee has established procedures for the pre-approval of all audit and permitted non-audit-related services provided by our independent registered public accounting firm. The procedures include, in part, that: (1) the audit committee, on an annual basis, shall pre-approve the independent registered public accounting firm’s engagement letter/annual service plan; (2) the audit committee must pre-approve any permitted service not included in the annual service plan; (3) the audit committee chairman may pre-approve any permitted service between regularly scheduled meetings, as applicable, and a report of such services and related fees are to be disclosed to the full audit committee at the next scheduled meeting; and (4) the audit committee will review a summary of the services provided and the fees paid on an annual basis.

 

The audit committee provides assistance to the Board of Directors in fulfilling its responsibility to our stockholders, potential stockholders and the investment community relating to corporate accounting, financial, management and reporting practices, the system of internal controls and the auditing process. Specifically, the audit committee assists the Board of Directors in monitoring the integrity of our financial statements, our independent registered public accounting firm’s qualifications and independence, the performance of our audit function and independent registered public accounting firm, our compliance with legal and regulatory requirements and our policies with respect to risk assessment and risk management. The audit committee has direct responsibility for the appointment, compensation, retention (including termination) and oversight of our independent registered public accounting firm, and our independent registered public accounting firm reports directly to the audit committee.

 

During fiscal year 2009, the audit committee was composed of the following independent Directors: Messrs. Defforey, DiRomualdo and Philippin. Each of Messrs. Defforey, DiRomualdo and Philippin has been designated by the Board of Directors as an “audit committee financial expert” as defined in applicable SEC Rules. The Board of Directors made a qualitative assessment of each member’s level of knowledge and experience based on a number of factors, including education and work, management and director experience. The Board of Directors has determined that each committee member qualifies as a “nonemployee director” under SEC rules and regulations, as well as the independence requirements of NASDAQ. All members of our audit committee are financially literate and are independent, as independence is defined in Rule 4350(d)(2)(A)(i) and (ii) of the NASDAQ listing standards and Section 10A(m)(3) of Exchange Act. The audit committee met 12 times during fiscal year 2009, and its report is presented below. The audit committee acts under a written charter that was adopted by the Board of Directors and has been published under “Corporate Governance” in the Investor Relations section of the Ulta website located at http://ir.ulta.com.

 

The audit committee assists the Board of Directors in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of Ulta.

 

The audit committee oversees Ulta’s financial process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. Ulta has an Internal Audit Department that is actively involved in examining and evaluating Ulta’s financial, operational and information systems activities and reports functionally to the Chair of the audit committee and administratively to management. In fulfilling its oversight responsibilities, the audit committee reviewed and discussed with management the periodic reports, including the audited financial statements in our Annual Report on Form 10-K. This included a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.

 

The audit committee reviewed with the independent registered public accounting firm, who is responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States of America, its judgments as to the quality, not just the acceptability, of Ulta’s accounting principles and such other matters as are required to be discussed with the audit committee under generally accepted auditing standards, including Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. In addition, the audit committee has discussed with the independent registered public accounting firm the firm’s independence from management and Ulta, including the matters in the written disclosures and the Letter from the Independent Registered Public Accounting Firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the firm’s communications with the audit committee concerning independence.

 

The audit committee discussed with Ulta’s independent registered public accounting firm the overall scope and plans for their audit, and developed a pre-approval process for all independent registered public accounting firm services. The audit committee meets with the independent registered public accounting firm, with and without management present, to discuss the results of their examination, their evaluation of Ulta’s internal and disclosure controls and the overall quality of Ulta’s financial reporting. The audit committee held 12 meetings during fiscal year 2009.

 

In reliance on the reviews and discussions referred to above, the audit committee recommended to the Board of Directors, and the Board of Directors approved, that the audited financial statements be included in Ulta’s Annual Report on Form 10-K for the fiscal year 2009, ended January 30, 2010, for filing with the SEC. The audit committee has appointed Ernst & Young LLP to be Ulta’s independent registered public accounting firm for the fiscal year 2010, ending January 29, 2011.

 

 

Audit Committee of the Board of Directors

 

Hervé J.F. Defforey (Chairman)
Robert F. DiRomualdo
Charles J. Philippin

 

 

The compensation committee met 16 times during fiscal year 2009, and its report is presented below. During fiscal year 2009, the compensation committee was composed of the following independent Directors: Messrs. Eck (Chairman), Heilbronn, and Lebow. Lorna Nagler, also an independent Director, joined the committee immediately following her election to the Board at the 2009 annual meeting. The Board of Directors has determined that each committee member qualifies as a “nonemployee director” under rules and regulations of the SEC, as well as the independence requirements of NASDAQ. The compensation committee acts under a written charter that was adopted by the Board of Directors and has been published under “Corporate Governance in the Investor Relations section of the Ulta website located at http://ir.ulta.com. Under this charter, the compensation committee is responsible for:

 

 

The compensation committee may under its charter delegate any of its responsibilities to a subcommittee, but only to the extent consistent with our bylaws, articles of incorporation, section 162(m) of the Internal Revenue Code and Nasdaq rules. In connection with the performance of its duties, the compensation committee has sought the input of our Chief Executive Officer with respect to her compensation, as well as, other executives’ compensation.

 

Compensation consultant

 

During 2009 the compensation committee engaged Towers Perrin, an outside consultant, to provide information regarding market comparisons for certain positions and general executive compensation advice. Towers Perrin was engaged directly by the compensation committee, and neither Towers Perrin nor its affiliates performed other work for Ulta or our affiliates. Towers Perrin merged with Watson Wyatt in January 2010 and became Towers Watson. This merger had no material effect on the services provided to Ulta.

 

Compensation risk

 

The Company has reviewed its compensation plans, practices and policies and has determined that it does not have any such plans, practices and policies that create risks that are reasonably likely to have a material adverse effect on the Company.

 

Compensation committee interlocks and insider participation

 

None of the members of our compensation committee has at any time been one of our officers or employees. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers serving on our Board of Directors or compensation committee.

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS²

 

The compensation committee has reviewed and discussed the following Compensation Discussion and Analysis (CD&A) with management. Based on this review and discussion, the compensation committee recommended to the Board of Directors that the CD&A be included in Ulta’s 2009 Annual Report on Form 10-K and this Proxy Statement.

 

Compensation Committee of the Board of Directors

 

Dennis K. Eck (Chairman)
Charles Heilbronn
Steven E. Lebow
Lorna Nagler

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Philosophy

 

Our executive compensation philosophy is to provide compensation opportunities that attract, retain and motivate talented key executives. We accomplish this by:

 

 

Our compensation program consists of a fixed base salary, variable cash bonus and stock option awards, with a significant portion weighted towards the variable components. This mix of compensation is intended to ensure that total compensation reflects our overall success or failure and to motivate executive officers to meet appropriate performance measures.

 

Overview of 2009 compensation

 

Due to the challenging economic environment in early 2009, we did not raise our named executive officer’s salaries, other than Mr. Bodnar’s, which is discussed in more detail below. For 2009, we modified our bonus plan due to the uncertainty of the market, by making a portion of the bonus completely discretionary and the remainder subject to one company wide performance goal related to earnings. Due to our outstanding performance in 2009, we exceeded the earnings target for that portion of the bonus and therefore paid out bonuses for that portion at the maximum level. The compensation committee also decided to reward Ms. Kirby with an additional bonus above and beyond the amount required under her contract based on this performance. We continued to use stock options as our long term incentives and made grants in accordance with our normal annual program. However, the compensation committee made off-cycle grants to Mr. Bodnar and Mr. Guttman for retention and performance purposes.

 

Peer group

 

The competitive marketplace for our executive compensation was evaluated against market based surveys and a pre-determined peer group set in 2008 under the supervision of Towers Perrin.

 

 

 

The compensation committee does not rely solely on the peer group or survey data in making its individual compensation determinations, but rather the compensation committee considers Ms. Kirby’s input as to the executive’s performance and internal pay equity among current executives and newly hired executives. The compensation committee also considers the accounting and tax impact of each element of compensation and in the past has tried to minimize the compensation expense impact of equity grants on our financial statements, while minimizing the tax consequences to executives.

 

Base salary

 

Base salaries are reviewed annually and are set based on individual contract negotiation, competitiveness versus the external market and internal merit increase budgets. Based on a review of marketplace salary increases contained in survey data reviewed by the compensation committee, as well as its assessment of current economic and other market conditions, each year management proposes a merit baseline percentage increase in salaries. Ms. Kirby then recommends to the compensation committee adjustments to the baseline percentage (either up or down) based on her assessment of an individual’s performance, with input from the human resources department.

 

As discussed above, none of the named executive officers’ salaries, other than Mr. Bodnar’s, were increased in 2009 due to the general economic conditions at the time. Mr. Bodnar’s base salary was increased in 2009 by $30,000 to an annual base pay rate of $350,000 based on input from a review by Mr. L’Heureux (our Senior Vice President of Human Resources) of chief financial officer compensation with the peer group and Towers Perrin’s confirmation of the competitiveness of his compensation. In connection therewith, Mr. Bodnar’s bonus target was also increased to 50% of his base salary.

 

Annual bonuses

 

Under the terms of her contract entered into in 2008, Ms. Kirby’s target bonus is 100% of her base salary, with a maximum bonus equal to 200% of her base salary. Her target and maximum were set based on Towers Perrin’s input during the 2008 contract negotiations to be median for chief executive officers in the survey data and peer group discussed above. As discussed above, Mr. Bodnar’s target bonus was increased to 50% of his base salary in 2009. Mr. Guttman and Mr. L’Heureux have a target bonus of 40% of their base pay.

 

In fiscal 2009, the bonuses for Ms. Kirby, Mr. Bodnar, Mr. Guttman and Mr. L’Heureux were based on achievement of one quantifiable objective performance target weighted at 80% of the bonus opportunity. The

remaining 20% of the bonus opportunity was based on discretionary performance reviews. The performance target for 2009 was $47 million of earnings before income taxes, adjusted for certain accounting charges required under generally accepted accounting principles and non-recurring charges (“EBT”).

 

In fiscal 2008, our bonus plan paid out based on EBT and return on invested capital (ROIC) targets weighted 70%-30% respectively. The compensation committee decided to change the bonus structure in 2009 based on input from Mr. L’Heureux and confirmed with Towers Perrin as to the trends in setting bonus targets in early 2009, recognizing the difficult economic environment at the time, especially for retail companies.

 

No bonus was payable unless performance under the EBT goal exceeded 80% of the target. A maximum of 250% could be earned by Messrs. Bodnar, L’Heureux and Guttman and 200% under her contract for Ms. Kirby. In setting the EBT target, the compensation committee believes that excluding the impact of non-recurring charges and certain other accounting charges is appropriate because these are items over which management has no control. Actual EBT for fiscal 2009 was $63.7 million (vs. target of $47 million) resulting in a payout of $1,540,032 for Ms. Kirby and $350,002, $232,228 and $228,900 for Messrs Bodnar, Guttman and L’Heureux, respectively.

 

The compensation committee and the Board of Directors based on Ms. Kirby’s input, including her own performance, also assessed each named executive officer’s performance during the year to determine the discretionary portion of the bonus payable. With respect to Ms. Kirby, the compensation committee also sought the input of the full board of directors. Based on this assessment, Mr. Bodnar received $38,500, Mr. Guttman received $23,223 and Mr. L’Heureux received $22,890 (representing 110%, 100% and 100% of the 20% discretionary portion of their bonus, respectively). The EBT portion of Ms. Kirby’s bonus reached the maximum limit for her bonus of 200% of her salary under the terms of her contract. However, the compensation committee used its discretion to pay Ms. Kirby an additional $80,000 bonus in recognition of the Company’s performance during an unpredictable and difficult retail environment.

 

Stock options

 

In September 2008, we instituted a long term incentive program (LTIP) under which we have made annual option grants to our executives and certain other employees. In addition, certain employees are eligible to receive grants of stock options upon hire or promotion. All executives, other than Ms. Kirby are eligible for the LTIP. Ms. Kirby is entitled to significant option grants under her employment agreement. As a result, the compensation committee determined that Ms. Kirby did not need any additional equity compensation under the LTIP.

 

Under the LTIP each employee receives an option grant based on a Black Scholes value equal to a targeted percentage of base salary. This targeted percentage was determined in 2008 based on input from Towers Perrin as to market median practices for long term incentives. As recommended by Towers Perrin for each position and approved by the compensation committee the target percentage of base salary for LTIP is 55% for Mr. Bodnar, and 50% for Mr. Guttman and Mr. L’Heureux.

 

Option grants under the LTIP generally have the following characteristics:

 

 

In 2009 Messrs. Bodnar and Guttman also received option grants outside of the normal LTIP cycle. Mr. Bodnar received 40,000 options and Mr. Guttman received 20,000 options. Both of these grants were intended to act as a retention device, and were also intended to reward performance. These additional option grants have the same terms as grants under the LTIP.

Option granting policy

 

In 2008 we adopted a general policy of making LTIP and other stock option grants and setting the exercise price for such options based on the closing price of our stock on the third business day following the date our earnings announcement is made for each fiscal quarter. This timing of option grants is, thus, generally consistent with when our executives and directors would be allowed to trade in our common stock under our insider trading policy. The compensation committee determined that setting the exercise price for stock options at this time was prudent in that it allowed for the market to process all reported public information prior to pricing of stock options, including officers and directors. Such a practice thereby eliminates any potential manipulation regarding the timing of stock option grants. All stock option grants are approved in advance by the compensation committee.

 

Benefits, perquisites and tax-gross-ups

 

Executives are allowed to defer compensation under our non-qualified deferred compensation plan, which is more fully described in the narrative to the Non-Qualified Deferred Compensation Table below. For all eligible employees, we offer a 401(k) plan with matching contributions equal to 50% of contributions made up to 3% of eligible compensation. We also offer to eligible employees group health, life, accident and disability insurance. In addition, all employees are entitled to a discount on purchases at our stores.

 

In 2007, we became aware of an issue with the State of New York imposing income tax liabilities on our employees who were not residents of New York based on the amount of work for Ulta that these employees performed in New York (including business meetings and attendance at trade shows). This impacts a number of our employees who are residents of Illinois, including Ms. Kirby. Because a large portion of the beauty industry is concentrated in New York, we require certain of our employees to travel to and work in New York from time to time. However, as the income tax rates applicable in New York are substantially higher than those in Illinois, it was more expensive for our employees, on a tax basis, if we asked them to work in New York. Because we did not want to provide a disincentive to our employees to work from time to time in New York, and because the nature of their work requires travel to New York, the compensation committee determined that it was in our best interests to gross-up non-New York employees for any differences in taxes paid on income in New York versus the rate that such employees would have paid in their home state. This tax gross-up is applicable to all employees impacted, not just executives. Accordingly, the compensation committee determined to reimburse employees for this difference in taxes each year.

 

Severance

 

Under the terms of her employment agreement Ms. Kirby could be entitled to certain severance benefits more fully described below under “Severance and Change in Control Benefits.” The compensation committee determined that such benefits were within market practices based on the information provided by Towers Perrin and were provided to retain Ms. Kirby under a three year contract, during which it could implement a successorship plan.

 

In addition Messrs. Guttman and L’Heureux are entitled to severance under the terms of their offers of employment, as more fully described below under “Severance and Change in Control Benefits.” Severance for these officers was considered a necessary part of their compensation package in order to attract them to join Ulta. Mr. Bodnar would be expected to receive severance as well, if involuntarily terminated for reasons other than cause.

 

Accounting and tax considerations

 

The compensation committee also considers the accounting and tax impact of each element of compensation and in the past has tried to minimize the compensation expense impact of equity grants on our financial statements, while minimizing the tax consequences to executives.

 

A goal of the compensation committee is to comply with the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended. Section 162(m) limits the tax deductibility for public companies, of annual

compensation in excess of $1,000,000 paid to our Chief Executive Officer and any of our three other most highly compensated executive officers, other than our Chief Financial Officer. However, performance-based compensation that has been approved by our stockholders is excluded from the $1,000,000 limit if, among other requirements, the compensation is payable only upon the attainment of pre-established, objective performance goals and the committee of our Board of Directors that establishes such goals consists only of “outside directors.” The compensation committee is composed solely of outside directors.

 

The compensation committee considers the anticipated tax treatment to us and our executive officers when reviewing executive compensation and our compensation programs. While the tax impact of any compensation arrangement is one factor to be considered, such impact is evaluated in light of the compensation committee’s overall compensation philosophy and objectives. The compensation committee will consider ways to maximize the deductibility of executive compensation, while retaining the discretion it deems necessary to compensate officers in a manner commensurate with performance and the competitive environment for executive talent. From time to time, the compensation committee may award compensation to our executive officers which is not fully deductible if it determines that such award is consistent with its philosophy and is in our and our stockholders’ best interests.

 

Our 2007 Incentive Award Plan has been designed and implemented with the intent to allow us to pay performance-based compensation under Section 162(m) of the Internal Revenue Code. Accordingly, stock option grants under the 2007 Incentive Award Plan should be performance based and therefore deductible under Section 162(m).

 

Summary compensation table

 

The following table sets forth the compensation of our Chief Executive Officer, Chief Financial Officer and our other most highly compensated executive officers for our fiscal year ending January 30, 2010. We refer to these individuals collectively as the NEOs.

 

 

 

 

 

Grants of plan-based awards

 

The following table sets forth certain information with respect to grants of plan-based awards for fiscal 2009 to the NEOs.

 

 

 

 

Outstanding equity awards as of January 30, 2010

 

The following table presents information concerning options to purchase shares of our common stock held by the NEOs as of January 30, 2010.

 

 

 

 

2009 Non-qualified Deferred Compensation

 

The table below sets forth certain information as of January 30, 2010 with respect to the non-qualified deferred compensation plans in which our named executive officers participate.

 

 

 

 

The Ulta Nonqualified Deferred Compensation Plan became effective January 1, 2009. Participants may defer up to 75% of their base salary and 100% of their annual cash bonus. We do not match or make any other contributions to the plan. Participants may direct the investment of their contributions to the plan among several mutual funds, similar to those available under our 401(k) plan.

 

Severance and Change in Control Benefits

 

In the event that Ms. Kirby’s employment is terminated without cause, or she terminates for “good reason” prior to the later of March 17, 2011 or the date on which we announce our fiscal 2010 earnings, then she will be entitled to the following as severance subject to her providing of a general release of claims:

 

 

 

In addition, if Ms. Kirby’s employment is terminated without cause or for good reason within 12 months following a change in control, she will vest in all options and restricted stock that she holds regardless of when granted.

 

For this purpose “Cause” shall mean Ms. Kirby’s:

 

 

Any act or failure to act shall be considered “willful” only if done or omitted to be done without a good faith reasonable belief that such act or failure to act was in our best interests.

 

Ms. Kirby will have “Good Reason” to terminate her employment if:

 

 

Ms. Kirby must give written notice within thirty (30) days of any event giving rise to Good Reason and we must fail to cure within thirty (30) days of such notice in order for such event to qualify as a Good Reason termination.

 

In the event Ms. Kirby’s employment is terminated by reason of death or disability, she or her estate, subject to provision of a general release of claims, will be entitled to:

 

 

In connection with her employment agreement Ms. Kirby entered into an agreement not to disclose or use our confidential information at any time. She also agreed not to work for, or otherwise be involved for a period of one year with any competitor, and for a period of two years for any competitor engaged solely in the retail distribution of hair styling, beauty salon, spa services, fragrance, cosmetics, salon products or beauty aid/products (“Retailers”). In addition, she agreed not to solicit any of our employees, customers or suppliers for a period of two years following her termination for any reason.

 

On April 26, 2010, the Company announced that Ms. Kirby would resign as Chief Executive Officer of Ulta between June 30, 2010 and September 2, 2010 (the “Termination Date”), but would remain on the Board of Directors through March 2011. In connection with her resignation, Ulta and Ms. Kirby entered into a Succession Agreement pursuant to which Ms. Kirby will be entitled to severance under her employment agreement only if she is terminated without cause or for good reason prior to the Termination Date. Under her Succession Agreement, Ms. Kirby agreed that the transition of Chuck Rubin into the Chief Operating Officer role in preparation for his assuming the Chief Executive Officer role will not give her good reason to terminate. Additionally, she agreed that her non-compete period with respect to Retailers and competitors which are engaged exclusively in the retail distribution of various products, including hair styling, beauty salon, spa services, fragrance, cosmetics, salon products or beauty aid/products (i.e., JCPenney, CVS/pharmacy, Target) would start when she left the Board of Directors and not when she terminated employment.

 

In the event that Messrs. Guttman or L’Heureux’s employment is terminated without cause, they will be entitled to a lump-sum payment equal to six months salary subject to providing of a general release of claims. In addition, if their employment is terminated without cause within 12 months following a change in control, they will vest in all options that they hold regardless of when granted.

 

Although Mr. Bodnar does not have a contractual right to severance, we would likely also pay him six months severance in connection with a termination without cause, in exchange for a general release of claims similar to Messrs. Guttman or L’Heureux. In addition, if his employment is terminated without cause within 12 months following a change in control, he will vest in all options that he holds regardless of when granted.

The following chart sets forth the amount that Ms. Kirby, and Messrs. Bodnar, Guttman and L’Heureux would receive in the event that their employment were terminated without cause, for good reason, or due to death or disability, or in connection with a change in control, on the last day of the 2009 fiscal year, January 30, 2010, and assuming the exercise of all options the vesting of which is accelerated upon such event. These amounts do not include any value for:

 

 

 

The following table presents information concerning the beneficial ownership of the shares of our common stock as of April 19, 2010 by

 

 

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned by them, subject to community property laws where applicable. Shares of our common stock subject to options that are currently exercisable or exercisable within 60 days of April 19, 2010 are deemed to be outstanding and to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 

This table lists applicable percentage ownership based on 58,293,399 shares of common stock outstanding as of March 25, 2010, as reported in our Annual Report on Form 10-K filed with the SEC on March 31, 2010. Unless otherwise indicated, the address for each of the beneficial owners in the table below is c/o Ulta Salon, Cosmetics & Fragrance, Inc., 1000 Remington Blvd., Suite 120, Bolingbrook, IL 60440.

 

 

 

 

 

 

Section 16(a) of the Exchange Act requires our Directors and executive officers and persons who own more than 10% of a registered class of our equity securities to file reports of beneficial ownership and changes in beneficial ownership with the SEC. To our knowledge, based solely on a review of the copies of such forms furnished to us and written representations that no other forms were required during the fiscal year ended January 30, 2010, all Section 16(a) filing requirements applicable to our Directors, executive officers and greater than 10% beneficial owners were complied with, except that Lynelle P. Kirby, our Chief Executive Officer and a Director untimely filed one report.

 

Related party transaction approval policy

 

Our Board of Directors has adopted written policies and procedures for the approval or ratification of any “related party transaction,” defined as any transaction, arrangement or relationship in which we are a participant, the amount involved exceeds $120,000 and one of our executive officers, Directors, Director nominees, 5% stockholders (or their immediate family members) or any entity with which any of the foregoing persons is an employee, general partner, principal or 5% stockholder, each of whom we refer to as a “related person,” has a direct or indirect interest as set forth in Item 404 of Regulation S-K. The policy provides that management must present to the audit committee for review and approval each proposed related party transaction (other than related party transactions involving compensation matters, certain ordinary course transactions, transactions involving competitive bids or rates fixed by law, and transactions involving services as a bank depository, transfer agent or similar services). The audit committee must review the relevant facts and circumstances of the transaction, including if the transaction is on terms comparable to those that could be obtained in arms’-length dealings with an unrelated third party and the extent of the related party’s interest in the transaction, take into account the conflicts of interest and corporate opportunity provisions of our code of business conduct, and either approve or disapprove the related party transaction. If advance approval of a related party transaction requiring the audit committee’s approval is not feasible, the transaction may be preliminarily entered into by management upon prior approval of the transaction by the chair of the audit committee subject to ratification of the transaction by the audit committee at its next regularly scheduled meeting. No Director may participate in approval of a related party transaction for which he or she is a related party.

 

Related party transactions and relationships

 

Since the beginning of fiscal 2009, we have engaged in the following transactions with our Directors, executive officers and holders of 5% or more of our common stock.

 

Registration rights agreement

 

In connection with our initial public offering in October 2007, the holders of 5% or more of our common stock and certain of our Directors, among others, entered into a Third Amended and Restated Registration Rights Agreement with us relating to the shares of common stock they hold.

 

Transactions with vendors

 

Charles Heilbronn, one of our Directors, is Executive Vice President and Secretary, as well as a director, of Chanel, Inc. In fiscal 2009, Chanel, Inc. sold to Ulta approximately $5.4 million of fragrance on an arms’ length basis pursuant to Chanel’s standard wholesale terms, and is expected to continue to sell fragrance to Ulta during fiscal 2010.

 

Mr. Heilbronn is also a Membre du Conseil de Surveillance (a non-executive board of trustees) of Bourjois SAS (France), the parent company of Bourjois, Ltd. (U.S.). In fiscal 2009, Bourjois SAS and Bourjois, Ltd. sold to Ulta approximately $768,000 and $120,000, respectively, of beauty products on an arms’ length basis pursuant to Bourjois’ standard wholesale terms. Bourjois SAS is expected to continue to sell beauty products to Ulta during fiscal 2010.

 

Other Matters

 

The Board of Directors knows of no other matters that will be presented for consideration at the Annual Meeting of Stockholders. If any other matters are properly brought before the Annual Meeting of Stockholders, it is the intention of the persons named on the accompanying Proxy Card to vote on such matters in accordance with their best judgment.

 

It is important that proxies be returned promptly. Whether or not you expect to attend the Annual Meeting in person, you are requested to complete, date, sign and return the proxy card as soon as possible.

 

By Order of the Board of Directors

 

Robert S. Guttman

Senior Vice President, General Counsel and Secretary

 

May 7, 2010

 

A COPY OF ULTA’S ANNUAL REPORT TO THE SEC ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 30, 2010, IS AVAILABLE WITHOUT CHARGE THROUGH THE INVESTOR RELATIONS SECTION OF OUR WEBSITE AT HTTP://IR.ULTA.COM, AND UPON WRITTEN REQUEST TO: INVESTOR RELATIONS, ULTA SALON, COSMETICS & FRAGRANCE, INC., 1000 REMINGTON BLVD., SUITE 120, BOLINGBROOK, IL 60440.

Ulta Salon, Cosmetics & Fragrance, Inc.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

     The undersigned hereby appoints Lynelle P. Kirby and Robert S. Guttman as proxies, with full power of substitution, to represent and vote as designated on the reverse side, all the shares of Common Stock of Ulta Salon, Cosmetics & Fragrance, Inc. held of record by the undersigned on April 19, 2010, at the Annual Meeting of Stockholders to be held at the Company’s headquarters located at 1000 Remington Boulevard, Bolingbrook, IL 60440, on June 16, 2010, or any adjournment or postponement thereof.

     Important notice regarding availability of proxy materials for the Annual Meeting of Stockholders to be held on June 16, 2010. The Proxy Statement and Annual Report are available at the Investor Relations section of our website at http://ir.ulta.com.

(Continued and to be signed on the reverse side)

ANNUAL MEETING OF STOCKHOLDERS OF

Ulta Salon, Cosmetics & Fragrance, Inc.

June 16, 2010

Please sign, date and mail
your proxy card in the
envelope provided as soon
as possible.

ê Please detach along perforated line and mail in the envelope provided. ê

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF DIRECTORS AND “FOR” PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x

Signature of Stockholder

Date:

Signature of Stockholder

Date:

		Note:		Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.