Nutrisystem 2011 Annual Report Download - page 63

of Civil Procedure 1028(a)(1) and (a)(4) under Pennsylvania’s internal affairs doctrine; (2) failure to state a claim
upon which relief may be granted under Pennsylvania Rule of Civil Procedure 1028(a)(4); and (3) lack of
capacity to sue under Pennsylvania Rule of Civil Procedure 1028(a)(5) because the plaintiff did not make a
demand on the Company’s directors and failed to adequately allege that such demand was excused. On
November 21, 2011, defendants filed a praecipe for argument in which they requested oral argument. On
December 23, 2011, plaintiff filed his opposition to the defendants’ preliminary objections and alleged that the
directors issued false and misleading statements in the Company’s proxy statement by stating that the Company
adhered to a pay-for-performance policy when in fact it did not. On January 23, 2012, defendants filed their reply
brief in support of their preliminary objections to the complaint. Oral argument was heard by the court on
February 8, 2012. On February 13, 2012, the court denied the defendants’ preliminary objections. The
defendants’ answer to the complaint is now required to be filed by March 13, 2012. The Company believes that
the claims are without merit and intends to defend the litigation vigorously.
The Company is also involved in other various claims and routine litigation matters. In the opinion of
management, after consultation with legal counsel, the outcomes of such matters are not anticipated to have a
material adverse effect on the Company’s consolidated financial position, results of operations or cash flows in
future years.
Contractual Commitments
The Company has entered into supply agreements with various food vendors. The majority of these agreements
provide for annual pricing and annual purchase obligations, as well as exclusivity in the production of certain
products, with terms of five years or less. One agreement also provides rebates if certain volume thresholds are
exceeded. In 2010, a new pricing and food purchase agreement with a frozen food supplier was executed which
required advance payments to the supplier. The agreement with this supplier expired in November 2011 and the
Company has found other frozen food supply options to replace this supplier. As of December 31, 2011 and
2010, advances were $2,907 and $15,240, respectively. Included in the $2,907 are advances of $2,313 to a new
frozen food supplier whereby the Company has committed to purchase up to $10,000 of product through 2013. A
portion of the supplier advances in 2011 was classified as other assets in the accompanying consolidated balance
sheets. The Company has additional purchase obligations of $88,476 as of December 31, 2011. The Company
anticipates it will meet all annual purchase obligations in 2012.
10. STOCKHOLDERS’ EQUITY
Common Stock
In 2011, the Company issued 25,001 shares of common stock upon the exercise of stock options and received
proceeds of $129. During 2011, employees surrendered to the Company 147,848 shares of common stock valued
at $1,923 for payment of the minimum tax withholding obligations. Also, in 2011, the Company issued 154,836
shares of common stock as compensation to board members and spokespersons pursuant to their respective
contracts. Costs recognized for the vested portion of these stock grants were $1,296 which approximated fair
value. During each of the four quarters of 2011, the Company paid a dividend of $0.175 per share to all
stockholders of record. Subsequent to December 31, 2011, the Board of Directors declared a quarterly dividend
of $0.175 per share payable on March 26, 2012 to stockholders of record as of March 15, 2012. As of
December 31, 2011, 70,313 shares of common stock issued to spokespersons remain unvested. Additional
expense for those shares will be recognized upon vesting.
In 2010, the Company issued 54,927 shares of common stock upon the exercise of stock options and received
proceeds of $124. During 2010, employees surrendered to the Company 154,585 shares of common stock valued
at $3,497 for payment of the minimum tax withholding obligations. Also, in 2010, the Company issued 30,700
shares of common stock as compensation to board members and spokespersons pursuant to their respective
contracts. Costs recognized for these stock grants were $622 which approximated fair value. During each of the
four quarters of 2010, the Company paid a dividend of $0.175 per share to all stockholders of record.
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