SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-12
Nutri/System, Inc.
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(Name of Registrant as Specified in its Charter)
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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[LOGO OF NUTRI/SYSTEM]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 22, 2002
To the Stockholders of
Nutri/System, Inc.:
The Annual Meeting of Stockholders of Nutri/System, Inc. (the "Company")
will be held at 10:00 a.m., local time, on Monday, April 22, 2002, at the
offices of the Company located at 202 Welsh Road, Horsham, Pennsylvania 19044,
for the following purposes:
1. To elect five directors of the Company to hold office until the
Company's 2003 Annual Meeting of Stockholders and until their successors are
duly elected;
2. To ratify the appointment of Arthur Andersen LLP as independent public
accountants for the Company for its 2002 fiscal year; and
3. To transact such other business as may properly come before the Annual
Meeting and any adjournment, postponement or continuation thereof.
The Board of Directors has fixed the close of business on March 15, 2002 as
the record date for the determination of the stockholders entitled to notice of
and to vote at the Annual Meeting. A copy of the Company's Annual Report for
the year ended December 31, 2001, is being mailed to stockholders together with
this Notice.
Whether or not you expect to attend the Annual Meeting in person, please
complete, sign, date and return the enclosed form of proxy in the envelope
provided.
By Order of the Board of Directors,
Brian D. Haveson,
President and Chief Executive Officer
Horsham, Pennsylvania
March 19, 2002
NUTRI/SYSTEM, INC.
PROXY STATEMENT
This Proxy Statement and the form of proxy enclosed herewith, which are
first being mailed to stockholders on or about March 19, 2002, are furnished in
connection with the solicitation by the Board of Directors of Nutri/System, Inc.
(the "Company") of proxies to be voted at the Annual Meeting of Stockholders
(the "Annual Meeting") to be held at 10:00 a.m., local time, on Monday, April
22, 2002 and at any adjournment, postponement or continuation thereof, at the
Company's principal executive offices at 202 Welsh Road, Horsham, Pennsylvania
19044.
Shares represented by proxies in the accompanying form, if properly signed
and returned, will be voted in accordance with the specifications made thereon
by the stockholders. Any proxy not specifying to the contrary will be voted in
favor of the adoption of the proposal referred to in the Notice of Annual
Meeting and for the election of the nominees for director named below. A
stockholder who signs and returns a proxy in the accompanying form may revoke it
at any time before it is voted by giving written notice of revocation or a duly
executed proxy bearing a later date to the Secretary of the Company or by
attending the Annual Meeting and voting in person.
The cost of solicitation of proxies in the accompanying form will be borne
by the Company, including expenses in connection with preparing and mailing this
Proxy Statement. Such solicitation will be made by mail and may also be made on
behalf of the Company in person or by telephone or telegram by the Company's
regular officers and employees, none of whom will receive special compensation
for such services. The Company, upon request therefore, will also reimburse
brokers, nominees, fiduciaries and custodians and persons holding shares in
their names or in the names of nominees for their reasonable expenses in sending
proxies and proxy material to beneficial owners.
Only holders of Common Stock of record at the close of business on March
15, 2002, will be entitled to notice of and to vote at the Annual Meeting. As of
the close of business on March 15, 2002, the Company had outstanding 27,065,394
shares of Common Stock, each of which is entitled to one vote. Cumulative voting
rights do not exist with respect to the election of directors. The presence at
the Annual Meeting in person or by proxy of a majority of the outstanding shares
of Common Stock will constitute a quorum.
As of March 15, 2002, Brian D. Haveson and HPF Holdings, Inc., who are
included in the table herein under "Beneficial Ownership of Common Stock,"
beneficially owned in the aggregate 14,998,500 shares, or approximately 55.4%,
of the Company's outstanding Common Stock. Such stockholders have advised the
Company that they will vote their shares for the election of Brian D. Haveson,
Michael E. Heisley, Frederick C. Tecce, Donald R. Caldwell and Dean J. Bozzano
as directors, and for the ratification of the appointment of Arthur Andersen LLP
as the Company's independent public accountants for its 2002 fiscal year.
Accordingly, Mr. Haveson, Mr. Heisley, Mr. Tecce, Mr. Caldwell and Mr. Bozzano
will be elected as directors and the appointment of Arthur Andersen LLP as
independent public accountants for the Company for its 2002 fiscal year will be
ratified regardless of the votes of the Company's stockholders other than HPF
Holdings, Inc. and Brian D. Haveson.
3
ELECTION OF DIRECTORS
The Company's by-laws provide that the number of members of the Company's
Board of Directors shall be as fixed by the Board of Directors from time to
time. The number of members of the Board of Directors is currently fixed at
five.
Five directors are to be elected at the Annual Meeting. Unless otherwise
instructed, the proxies solicited by the Board of Directors will be voted for
the election of the nominees named below, all of whom are currently directors of
the Company. If a nominee becomes unavailable for any reason, it is intended
that the proxies will be voted for a substitute nominee designated by the Board
of Directors. The Board of Directors has no reason to believe the nominees named
will be unable to serve if elected. Any vacancy occurring on the Board of
Directors for any reason may be filled by a majority of the directors then in
office and each director elected to fill a vacancy will serve for the unexpired
term of his predecessor and until his successor is duly elected. The five
nominees for director receiving the largest number of the votes cast at the
Annual Meeting will be elected as directors. Shares held by brokers or nominees
as to which voting instructions have not been received from the beneficial owner
or person otherwise entitled to vote and as to which the broker or nominee does
not have discretionary voting power, i.e., broker non-votes, will be treated as
not present and not entitled to vote for nominees for election as directors.
Votes withheld and broker non-votes will have no effect on the election of
directors because they will not represent votes cast at the Annual Meeting for
the purpose of electing directors.
The names of the nominees for director, together with certain information
regarding them, are set forth below.
Director
Name Age Since
------- --- --------
Brian D. Haveson 38 1999
Michael E. Heisley 64 1999
Frederick C. Tecce 66 1999
Donald R. Caldwell 55 2000
Dean J. Bozzano 42 2000
Brian D. Haveson has served as President, Chief Executive Officer and as a
member of the Board of Directors of the Company since its formation in August
1999. Mr. Haveson was President of Nutri/System L.P. (the "Partnership"), a
predecessor of the Company, from 1997 until 1999 and was Chief Financial Officer
of the Partnership from 1993 until 1997. For five years prior thereto, Mr.
Haveson was a Manager in the Corporate Recovery Services Practice of Arthur
Andersen LLP. His work encompassed numerous industries, including retail,
manufacturing, trucking, printing, financial services and health care, assisting
with turnarounds and restructurings for over 20 companies.
Michael E. Heisley has been a director of the Company since its formation
in August 1999. Mr. Heisley is principally engaged as President and Chief
Executive Officer of Heico Acquisitions Inc., a holding company with a
diversified portfolio of operating companies, since 1979. Mr. Heisley is also
Chairman and Chief Executive Officer of The Heico Companies LLC, which is the
principal owner of Pettibone LLC (diversified manufacturer), Davis Wire
Corporation (wire products), National Standard Corporation (wire products),
Robertson Ceco Corporation (pre-engineered metal buildings), Ancra LLC (aircraft
freight systems), Ceco Construction LLC (concrete form works, steel fabrication
and electrical contracting) and Tom's Foods Inc.(snack foods). Since 1979 Mr.
Heisley has acquired or started over 30 operating companies and has substantial
or complete ownership interest in a group of businesses with over $1.5 billion
in annual revenues. Mr. Heisley is also Chairman and CEO of WorldPort
Communications, Inc., which is engaged in managed web hosting and IT services.
From 1973 until 1978 Mr. Heisley was President of SI Handling Systems, Inc. and
from 1971 to 1973 he was Vice President of Sperry Univac (now Unisys) where he
was responsible for integrating the RCA Computer Division into Univac. From 1960
until 1971, Mr. Heisley held a series of management positions with RCA.
4
Frederick C. Tecce has been a director of the Company since its formation
in August 1999. Mr. Tecce is of counsel to the law firm of Klett Lieber Rooney &
Schorling. Prior to joining Klett Lieber in 1996 he had been of counsel to the
law firm of Pepper Hamilton LLP since 1993.
Donald R. Caldwell has been a director of the Company since March 2000. Mr.
Caldwell has been Chairman and Chief Executive Officer of Cross Atlantic Capital
Partners, Inc., a venture capital management firm, since 1999. From 1996 to 1999
Mr. Caldwell was President and Chief Operating Officer of Safeguard Scientifics,
Inc., an Internet holding company, and from 1993 to 1996 he was Executive Vice
President of Safeguard Scientifics, Inc. Mr. Caldwell is a member of the Board
of Directors of Quaker Chemical Corporation and DiamondCluster International,
Inc.
Dean J. Bozzano has been a director of the Company since May 2000. Since
May 1999 Mr. Bozzano has been a principal of Magnum Capital, LLC, a venture
capital firm based in Phoenix, Arizona. From January 1996 to January 2000 Mr.
Bozzano also served as Chief Operating Officer of Sterling Capital, Ltd., an
investor in various early and middle stage operating companies. From March 1990
to December 1995 Mr. Bozzano was a partner of Arthur Andersen LLP, where he was
primarily responsible for starting Arthur Andersen LLP's International Corporate
Recovery Services practice.
Board and Committee Meetings
The Board of Directors met on one occasion in 2001. Each director attended
at least 75% of all Board and applicable committee meetings during 2001.
The Board of Directors has an Audit Committee that consists of Messrs.
Tecce, Caldwell and Bozzano. The Audit Committee is responsible for establishing
and reviewing the Company's internal controls and operating procedures to ensure
compliance by the Company with all applicable laws, regulations, generally
accepted accounting standards and customary operating procedures and practices.
The Audit Committee met two times in 2001.
The Board of Directors has a Compensation Committee that consists of
Messrs. Tecce, Caldwell and Bozzano. In 2001 the Board of Directors performed
the functions of the Compensation Committee. The Compensation Committee did not
meet separately in 2001.
The Board of Directors does not have a standing Nominating Committee. The
Board of Directors performs the function of a Nominating Committee.
Compensation of Directors
The Company does not pay its directors cash compensation other than
reimbursement for expenses they incur in attending meetings. In May 2000,
Directors other than Mr. Haveson and Mr. Heisley each received an option grant
of 20,000 shares under the 2000 Equity Incentive Plan for Outside Directors and
Consultants. Each option has an exercise price of $6.00 per share and is
exercisable in four equal installments on the first, second, third and fourth
anniversaries of the date of grant. The options expire ten years from the date
of grant. The Company did not grant options to its directors in 2001.
5
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth as of March 15, 2002 the amount and
percentage of the Company's outstanding Common Stock beneficially owned by (i)
each person who is known by the Company to own beneficially more than 5% of its
outstanding Common Stock, (ii) each director and nominee for director, (iii)
each executive officer named in the Compensation Table and (iv) all directors,
nominees for director and executive officers of the Company as a group.
Shares Percent of
Name Beneficially Outstanding
of Beneficial Owner Owned(1) Common Stock
--------------------------------------------------------------------------------
5% Holders:
Michael E. Heisley (2)...................... 8,200,000 30.3%
HPF Holdings, Inc.
2075 Foxfield Road
St. Charles, IL 60174
Brian D. Haveson (3)........................ 6,798,500 25.1
202 Welsh Road
Horsham, PA 19044
Directors and Nominees for Directors (4):
Frederick C. Tecce (5)...................... 880,000 3.3
Donald R. Caldwell (6)...................... 1,060,000 3.9
Dean J. Bozzano (7)......................... 10,000 *
Executive Officers (8):
James D. Brown (9).......................... 220,000 *
Deborah A. Gallen (10)...................... 191,666 *
Brendon Perero (11)......................... 146,666 *
All directors, nominees for directors
and executive officers as a group
(9 persons) (12)............................ 17,531,832 63.8%
___________________
* less than 1%.
(1) Information supplied by officers, directors and principal stockholders or
based upon filings, if any, with the Securities and Exchange Commission
(the "Commission") by each person. Under the rules of the Commission, a
person is deemed to be the beneficial owner of securities if such person
has or shares
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"voting power," which includes the power to vote, or to direct the voting
of, such securities, or "investment power," which includes the power to
dispose, or to direct the disposition, of such securities. Under these
rules, more than one person may be deemed the beneficial owner of the same
securities. The information set forth in the above table includes all
shares of Common Stock of the Company over which the above-named persons
individually or together share voting power or investment power.
(2) According to a Schedule 13D dated February 27, 2000 filed with the
Commission by Michael E. Heisley and HPF Holdings, Inc., Mr. Heisley is the
sole stockholder and President of HPF Holdings, Inc. and therefore both Mr.
Heisley and HPF Holdings, Inc. are deemed to own such shares beneficially.
(3) Includes a total of 62,000 shares held by members of Mr. Haveson's
immediate family, as to which shares Mr. Haveson disclaims beneficial
ownership.
(4) Excludes directors and nominees for directors listed under "5% Holders."
(5) Includes a total of 20,000 shares held by members of Mr. Tecce's immediate
family, as to which shares Mr. Tecce disclaims beneficial ownership. Also
includes an option to purchase 10,000 shares of Common Stock that is
exercisable within 60 days of March 15, 2002.
(6) Includes 950,000 shares held by CRX Investments I, L.P., a limited
partnership of which Mr. Caldwell is a limited partner and Cross Atlantic
Capital Partners, Inc. is the general partner. Mr. Caldwell is the Chief
Executive Officer and a principal stockholder of Cross Atlantic Capital
Partners, Inc. and therefore may be deemed to own such shares beneficially.
Also includes an option to purchase 10,000 shares of Common Stock that is
exercisable within 60 days of March 15, 2002.
(7) Includes an option to purchase 10,000 shares of Common Stock that is
exercisable within 60 days of March 15, 2002.
(8) Excludes executive officers listed under "5% Holders."
(9) Includes an option to purchase 190,000 shares of Common Stock that is
exercisable within 60 days of March 15, 2002.
(10) Includes a total of 20,000 shares held by members of Ms. Gallen's immediate
family, as to which shares Ms. Gallen disclaims beneficial ownership. Also
includes an option to purchase 6,666 shares of Common Stock that is
exercisable within 60 days of March 15, 2002.
(11) Includes an option to purchase 146,666 shares of Common Stock that is
exercisable within 60 days of March 15, 2002.
(12) Includes a total of 102,000 shares held by members of the immediate
families of such persons, as to which shares such persons disclaim
beneficial ownership. Includes options to purchase 398,332 shares of
Common Stock that are exercisable within 60 days of March 15, 2002.
7
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to
compensation paid or accrued by the Company during its 1999 (from the Company's
formation in August 1999), 2000 and 2001 fiscal years to the Company's Chief
Executive Officer and those of its executive officers which received more than
$100,000 in total salary and bonus during 2001. No other executive officer of
the Company received more than $100,000 in total salary and bonus during 2001.
Summary Compensation Table
--------------------------
Long-Term
Annual Compensation Compensation
------------------- -------------
Awards
------
Securities All Other
Name and Salary Underlying Compensation
Principal Position Year ($) (1) Bonus($) Options(#) ($)(2)
------------------ ---- ------- -------- ------------ -------------
Brian D. Haveson....... 2001 250,054 --- --- 8,464 (3)
President and Chief 2000 250,000 --- --- ---
Executive Officer 1999 67,308 --- --- 8,200,000 (4)
James D. Brown......... 2001 130,060 --- 250,000 3,900
Chief Financial 2000 130,055 --- 100,000 3,000
Officer
Deborah A. Gallen...... 2001 120,060 --- 150,000 ---
Vice President 2000 108,402 --- 20,000 ---
E-Commerce
Brendon Perero......... 2001 120,036 --- 180,000 3,600
Chief Information 2000 120,027 --- 40,000 2,769
Officer
_________________
(1) Mr. Haveson, Ms. Gallen and Mr. Perero commenced employment in August 1999,
while Mr. Brown commenced employment in November 1999.
(2) Unless otherwise indicated, the amounts in this column consist of matching
contributions made by the Company under its qualified tax deferred defined
contribution retirement plan.
(3) In 2001, Mr. Haveson received matching contributions made by the Company
under its qualified tax deferred defined contribution retirement plan
($5,769) and use of a company car ($2,695).
(4) In addition to his cash compensation, in 1999 Mr. Haveson received 8,200,000
shares of the Company's Common Stock, valued at $1.00 per share, in
consideration for his transfer to the Company of his 7.5% interest in
NSDirect, now a wholly owned subsidiary of the Company. This issuance of
shares to Mr. Haveson was treated as a compensation expense for accounting
purposes only.
8
Option Grants
The following table shows all options to acquire shares of the Company's
Common Stock granted during 2001 to the named executive officers:
Stock Option Grants in Last Fiscal Year
Individual Grants
-----------------
Number of
Securities
Underlying % of Total Options Grant
Options Granted to Employees Exercise Expiration Date Present
Name Granted (#) (1) in Fiscal Year Price ($/Sh) Date Value ($) (2)
---- --------------- -------------------- ------------ ---------- ------------
Brian D. Haveson............. --- 0.0% --- --- ---
James D. Brown............... 50,000 3.9% .45 5/25/11 16,992
200,000 15.7% .33 10/22/11 48,041
Deborah A. Gallen............ 50,000 3.9% .45 5/25/11 16,992
100,000 7.8% .33 10/22/11 24,021
Brendon Perero............... 30,000 2.3% .45 5/25/11 10,195
150,000 11.7% .33 10/22/11 36,031
_________________
(1) Each option has an exercise price per share equal to 100% of the estimated
fair market value of the Company's Common Stock on the grant date. Each
option is exercisable in three equal cumulative installments commencing on
the first, second and third anniversaries of the grant date, assuming that
the option holder remains an employee of the Company. The Company has not
granted any stock appreciation rights.
(2) The Black-Scholes model, a widely used and accepted formula for valuing
traded stock options, was used to determine the grant date present value of
the stock options. The Black-Scholes value used in this table is the same
value used to report the expense associated with stock options in the
Company's audited financial statements in accordance with FAS 123. The
following assumptions were used to calculate the Black-Scholes value: no
dividend yield; expected stock price volatility of 105.0-99.8%; risk-free
interest rate of 5.20%-4.26% and expected life of 4.3 years. These are not
projections, and therefore there is no guarantee that the Company's
assumptions will be the actual stock price volatility or the risk-free
interest rate over the next ten years. There will be no gain to the named
executives, however, if the per share market price of the Company's Common
Stock does not increase above the exercise price or declines.
9
Options Exercised and Year-End Option Values
The following table sets forth information with respect to options held at
December 31, 2001 by the named executive officers of the Company:
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values(1)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End at Fiscal Year End ($) (2)
-------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Brian D. Haveson................... --- --- --- ---
James D. Brown..................... 190,000 360,000 --- ---
Deborah A. Gallen.................. 6,666 163,334 --- ---
Brendon Perero..................... 146,666 273,334 --- ---
_______________
(1) No options were exercised by the named executive officers during 2001.
(2) The value of unexercised in-the-money options equals the difference between
the option exercise price and the closing price of the Company's Common
Stock on December 31, 2001 multiplied by the number of shares underlying
the options. The closing price of the Company's Common Stock on December
31, 2001, as reported on the Nasdaq OTC Bulletin Board, was $0.28 per
share, which is less than the exercise price of all outstanding options.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of Securities Exchange Act of 1934 (the "Exchange Act")
requires that the Company's officers and directors and persons who own more than
10% of the Company's Common Stock file reports of their ownership with the
Commission. Based solely on the Company's review of the copies of such reports
received by it, or written representations received from reporting persons, the
Company believes that during 2001 all filing requirements applicable to these
persons were met timely.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee Report
In the section below, we describe our financial and accounting management
policies and practices.
Composition. The Audit Committee of the Board of Directors is composed of
three independent directors, as defined by Nasdaq rules, and operates under a
written charter adopted by the Board of Directors. The members of the Audit
Committee are Donald R. Caldwell, Frederick C. Tecce and Dean J. Bozzano
(Chairman).
Responsibilities. The responsibilities of the Audit Committee include
recommending to the Board of Directors an accounting firm to be engaged as the
Company's independent accountants. Management is responsible for the Company's
internal controls and financial reporting process. The independent accountants
are responsible
10
for performing an independent audit of the Company's Consolidated Financial
Statements in accordance with generally accounting standards and for issuing a
report thereon. The Audit Committee's responsibility is to oversee these
processes.
Review with Management and Independent Accountants. In this context, the
Audit Committee has met and held discussions with management and the independent
accountants. Management represented to the Audit Committee that the Company's
Consolidated Financial Statements were prepared in accordance with generally
accepted accounting principles, and the Audit Committee has reviewed and
discussed the Consolidated Financial Statements with management and the
independent accountants. The Audit Committee discussed with the independent
accountants matters required to be discussed by Statement on Auditing Standards
No. 61, "Communication with the Audit Committees."
The Company's independent accountants also provided to the Audit Committee
the written disclosures and the letter required by Independent Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," and the Audit
Committee discussed with the independent accountants, Arthur Andersen LLP, the
firm's independence. The Audit Committee also considered the compatibility of
the provision of non-audit services by Arthur Andersen LLP with the maintenance
of Arthur Andersen LLP's independence.
Summary. Based upon the Audit Committee's discussions with management and
the independent accountants and the Audit Committee's review of the
representation of management, and the report of the independent accountants to
the Audit Committee, the Audit Committee recommended that the Board of Directors
include the audited Consolidated Financial Statements in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001, as filed with the
Commission.
This report is submitted by the Audit Committee on February 22, 2002.
Dean J. Bozzano (Chairman)
Frederick C. Tecce
Donald R. Caldwell
Audit and Related Fees
Audit Fees. The aggregate fees billed by Arthur Andersen LLP for
professional services for the audit of the Company's annual Consolidated
Financial Statements for 2001 and the review of the Consolidated Financial
Statements included in the Company's Forms 10-Q for 2001 were $72,000.
Financial Information Systems Design and Implementation Fees. There were
no fees billed by Arthur Andersen LLP to the Company for financial information
systems design and implementation in 2001.
All Other Fees. The aggregate fees billed to the Company for all other
services rendered by Arthur Andersen LLP in 2001, which consists of fees for tax
advisory services, were $18,500.
Report of the Board of Directors on Compensation Matters
In the section below, we describe our executive compensation policies and
practices. We also identify the procedures we use to determine the compensation
of the Company's Chief Executive Officer and executive management team.
Compensation Philosophy. In developing the Company's executive
compensation policies, we relied on two principal objectives: (1) attracting
and retaining talented officers and (2) motivating officers to achieve corporate
goals that enhance stockholder value.
11
In 2001, the paramount corporate goal was to create stockholder value by
increasing revenues and profitability and generating positive operating cash
flow. Accordingly, we continued to emphasize stock options as tool for
attracting, retaining and incentivizing executive management.
Cash Compensation. The Board of Directors authorized guidelines for base
compensation for executive management after reviewing compensation information
for firms of similar size and growth prospects in the Philadelphia region. The
Company's goal is to provide a reasonably competitive level of base
compensation.
In light of the Company's objective to generate operating cash flow, the
Company did not provide any cash bonus compensation for the executive management
team in the year 2001.
Working closely with Mr. Haveson, we will carefully monitor cash
compensation practices during 2002. Going forward, the Board of Directors
expects that cash compensation will be linked to factors such as corporate
financial and operating performance measures as well as the achievement of
individual executive performance objectives.
Stock Options. The Board of Directors strongly believes that stock options
motivate executive management and other employees to identify with stockholder
interests and maximize stockholder value. With the adoption of the 1999 and
2000 Equity Incentive Plans, the Company granted stock options to a large
proportion of the Company's employees. All stock options have a per share
exercise price equal to the fair market value of the Company's Common Stock on
the grant date. To date, options granted to employees vest in three equal
annual installments.
The number of options granted to each officer and the vesting schedule are
determined based on a variety of factors, including (1) the executive's position
at the Company, (2) his or her individual performance and (3) the number of
options the executive already holds. In 2001, the full Board of Directors
relied upon these factors to approve stock option grants for the named executive
officers and all other employees.
Compensation of the Chief Executive Officer. During 2001, Mr. Haveson
received a salary of $250,000. In light of the Company's need to carefully
manage cash resources in order to pursue its business strategy, Mr. Haveson
again requested that the Board of Directors not provide him with cash bonus
compensation for fiscal year 2001. In addition, Mr. Haveson currently will
forego any increase in base compensation. While Mr. Haveson has been granted no
stock options, the Board of Directors believe his interests are aligned with
stockholders by virtue of his direct ownership of 6,736,500 shares of Common
Stock or 24.9% of the Common Stock outstanding.
Tax Deductibility of Executive Compensation. Under Section 162(m) of the
Internal Revenue Code, the Company generally receives a federal income tax
deduction for compensation paid to any of its named executive officers if the
compensation is less than $1,000,000 during any fiscal year or is "performance-
based" under Section 162(m). Under these rules, all compensation paid to the
Company's named executive officers is tax deductible.
This report is submitted by the Board of Directors on February 22, 2002.
Frederick C. Tecce
Donald R. Caldwell
Dean J. Bozzano
Brian D. Haveson
Michael E. Heisley
Compensation Committee Interlocks and Insider Participation
In 2001 the Board of Directors performed the functions of the Compensation
Committee. During the year 2001, none of the Company's executive officers
served on the board of directors of any entities whose directors or officers
serve on the Company's Board of Directors. The Company's Chief Executive
Officer, Brian D. Haveson, does serve on the Company's Board of Directors.
12
From time to time, the Company purchases food from Tom's Foods, Inc., a
vendor that is an affiliate of Mr. Heisley, and vitamins and supplements from
HPF, L.L.C., a vendor that is an affiliate of Mr. Heisley and Mr. Haveson.
During the Company's 2001 fiscal year, the aggregate amount of food purchases
was approximately $465,600 and the aggregate amount of vitamin and supplement
purchases was approximately $60,300. Such transactions were effected on terms
no less favorable to the Company than those made available to independent third
parties.
STOCK PERFORMANCE
The following graph shows a comparison of cumulative total return since
June 16, 2000 (the date the Company became listed on the Nasdaq National Market)
for the Company's Common Stock, the Russell 2000 Index and the Dow Jones
Consumer Services Index (a published industry index), each of which assumes an
initial value of $100 and reinvestment of dividends.
COMPARISION OF CUMULATIVE TOTAL RETURN
AMONG NUTRI/SYSTEM, INC., THE DOW JONES
CONSUMER SERVICES INDEX AND THE RUSSELL 2000 INDEX
[GRAPH APPEARS HERE]
--------------------
6/16/00 12/29/00 12/31/01
------- -------- --------
Nutri/System, Inc. 100 8 2
Dow Jones Consumer Services Index 100 52 82
Russell 2000 Index 100 94 95
13
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP served as the Company's independent accountants for the
fiscal year ended December 31, 2001. The Board of Directors has reappointed
Arthur Andersen LLP as the Company's independent accountants for the fiscal year
ending December 31, 2002 subject to ratification thereof by the stockholders.
Absent instructions to the contrary, it is intended that votes will be cast
pursuant to the proxies for the ratification of the appointment of Arthur
Andersen LLP as the Company's independent accountants for its 2002 fiscal year.
The Company has been advised by Arthur Andersen LLP that none of its members or
associates has any direct financial interest or material indirect financial
interest in the Company or its subsidiaries. The ratification of the
appointment of Arthur Andersen LLP will require the affirmative vote of the
holders of a majority of the shares represented in person or by proxy at the
Annual Meeting. An abstention will not be voted, although it will be counted
for purposes of determining whether there is a quorum. Accordingly, an
abstention will have the effect of a negative vote. Shares held by a broker or
nominee that does not have the discretion to vote in the absence of specific
instructions from the beneficial owner, or "broker non-votes," will not be
counted in determining the number of votes necessary for approval.
A representative of Arthur Andersen LLP will attend the Annual Meeting.
This representative will have the opportunity to make a statement, if such
representative desires to do so, and will be available to respond to any
appropriate questions presented by the stockholders at the Annual Meeting.
ANNUAL REPORT
A copy of the Company's Annual Report for its fiscal year ended December
31, 2001 is being mailed to the Company's stockholders with this Proxy
Statement.
STOCKHOLDER PROPOSALS
Any stockholder who, in accordance with and subject to the provisions of
the proxy rules of the Commission, wishes to submit a proposal for inclusion in
the Company's proxy statement for the 2003 Annual Meeting of Stockholders must
deliver such proposal in writing to the Secretary of the Company at the
Company's mailing address in Horsham, Pennsylvania, not later than November 19,
2002.
Pursuant to Rule 14a-4(c) of the Exchange Act, if a stockholder who intends
to present a proposal at the 2003 Annual Meeting of Stockholders does not notify
the Company of such proposal on or before February 1, 2003, then management
proxies will be allowed to use their discretionary voting authority to vote on
the proposal when the proposal is raised at the Annual Meeting, even though
there is no discussion of the proposal in the 2003 proxy statement.
OTHER PROPOSALS
The Board of Directors does not know of any matters to be presented for
consideration at the Annual Meeting other than the matters described in the
Notice of Annual Meeting, but if any matters are properly presented, it is the
intention of the persons named in the accompanying proxy to vote on such matters
in accordance with their judgment.
By Order of the Board of Directors,
Brian D. Haveson,
President and Chief Executive Officer
March 19, 2002
14
Nutri/System, Inc.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 22, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby constitutes and appoints Brian D. Haveson and James D.
Brown, and each or either of them, proxies of the undersigned, with full power
of substitution, to vote all of the shares of Common Stock of Nutri/System, Inc.
(the "Company") which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the offices of the Company
located at 202 Welsh Road, Horsham, Pennsylvania 19044, on Monday, April 22,
2002 at 10:00 a.m., local time, and at any adjournment, postponement or
continuation thereof, as follows:
1. ELECTION OF DIRECTORS.
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY
to vote for the nominees listed
below
INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name on the following list:
Brian D. Haveson, Michael E. Heisley, Frederick C. Tecce, Donald R.
Caldwell, Dean J. Bozzano.
2. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31,
2002.
FOR [_] AGAINST [_] ABSTAIN [_]
3. In their discretion, the proxy holders, on behalf of and at the discretion
of the Board of the Directors of the Company, are authorized to vote with
respect to matters incident to the conduct of the Annual Meeting and upon
such other business as may properly come before the Annual Meeting,
pursuant to SEC Rules, and any adjournment, postponement or continuation
thereof.
This proxy will be voted as specified. If a choice is not specified, the
shares represented by this proxy will be voted "FOR" each director nominee,
and "FOR" the ratification of Arthur Andersen LLP as the independent public
accountants of the Company.
This proxy should be dated, signed by the stockholder(s) and returned promptly
to the Company in the enclosed envelope. Persons signing in a fiduciary
capacity should so indicate.
____________________________________________
SIGNATURE
____________________________________________
SIGNATURE
DATE: _______________________, 2002