Nutrisystem 2003 Annual Report Download - page 44

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42
In 1999, the Company issued 200,000 options to an employee which have an exercise price below the fair value on the
date of grant. Compensation expense of $20 per year associated with these options was recorded in 2002 and 2001. At
December 31, 2002, compensation costs related to these options was fully amortized to expense.
In 2003, an employee exercised options to purchase 50,000 shares of common stock ($18,500 total exercise price) by
tending 28,462 shares of common stock previously held.
The Company issued 330,666, 0 and 110,000 stock options to non-employees in 2003, 2002 and 2001, respectively.
These options vest over various periods and resulted in compensation expense of $159, $17 and $41 in 2003, 2002 and
2001, respectively. Compensation costs for these stock options relate to general and administrative expenses. The fair
value of the stock options issued to non-employees was determined using the Black-Scholes option pricing model and the
following weighted average assumptions:
2003 2002 2001
Dividend yield None None None
Expected volatility 70.0% 70.0% 70.0%
Risk-free interest rate 4.80% 4.80% 4.27% - 5.83%
Contract life (in years) 0.5-10.0 10.0 10.0
Common Stock Warrants
In return for services provided in connection with a private placement completed in 1999, the placement agent received
warrants to purchase 743,740 common shares at $1.00 per share. The fair value of the warrants of $344, computed using
the Black-Scholes option pricing model, was recorded as a reduction of the proceeds from the offering. In 2000, warrants
to purchase 45,000 common shares were exercised; with 42,391 net shares being issued. In 2003, 43,518 common shares
were issued upon the cashless exercise of 100,000 warrants. The 598,740 remaining outstanding warrants outstanding
expire on September 30, 2004.
10. RELATED-PARTY TRANSACTIONS
During 2002 and 2001, the Company purchased $478 and $466, respectively, of food from a vendor that is an affiliate of
a former member of the Board of Directors.
In 2002 and 2001, the Company purchased vitamins and supplements of $3 and $58, respectively, from a vendor that was
owned by a former member of the Board of Directors.
11. EMPLOYEE BENEFIT PLAN
The Company maintains a qualified tax deferred defined contribution retirement plan (the Plan). Under the provisions
of the Plan, substantially all employees meeting minimum age and service requirements are entitled to contribute on a
before and after-tax basis a certain percentage of their compensation. The Company matches 100% of an employees
contribution, up to a maximum Company match of 4% for 2003 and 3% for 2002 of the employees annual salary.
Employees vest immediately in their contributions and the Company contribution. The Companys expense in 2003,
2002 and 2001 was $106, $63 and $68, respectively.