Document:

EMPLOYMENT AGREEMENT

(Thomas F. Connerty)

This EMPLOYMENT AGREEMENT, dated November 30, 2007 (this "Agreement"), is between NutriSystem, Inc., a Delaware corporation (the "Company"), and Thomas F .Connerty (the "Employee").

The Employee and the Company are parties to the Employment Agreement, dated October 4, 2004, which became effective on November 30, 2004 (the "2004 Employment Agreement"), and desire to amend and restate the 2004 Employment Agreement to provide for the continued employment of the Employee as set forth herein.

The Company and the Employee, each intending to be legally bound by this Agreement, agree as follows:

	Effective Date

This Agreement shall amend and restate the 2004 Employment Agreement effective November 30, 2007 (the "Effective Date").  

	Employment

The Employee shall be the Executive Vice President, Program Development and Chief Marketing Officer of the Company and shall perform duties consistent with this position as are assigned by the Chief Operating Officer, Chief Executive Officer or the Board of Directors of the Company (the "Board").  The Employee shall report directly to the Chief Operating Officer and be an executive officer of the Company.

	Performance

The Employee shall devote substantially all of his business time and efforts to the performance of his duties under this Agreement during normal business hours.

	Term

The term of employment under this Agreement begins on the Effective Date and extends for five (5) years (the "Employment Term").  The Employment Term may be terminated early as provided in Sections 9 through 13 of this Agreement.

	Salary

The Employee's annual salary (the "Salary") is payable in installments when the Company customarily pays its officers (but no less often than twice per month).  Commencing on the Effective Date, the Salary shall be at the initial rate of $350,000 (the "Initial Salary").  The Board or the Compensation Committee shall review the Salary at least once a year.  The Salary shall never be less than the Initial Salary.

	Stock Grant

On the Effective Date, the Employee will receive restricted common stock valued at $2,000,000 (the "Stock Grant").  The number of restricted shares to be granted in the Stock Grant shall equal $2,000,000 divided by the closing price per share of the Company's common stock on the Effective Date.  The Stock Grant will vest in four (4) equal annual installments of 20% over four (4) years from the Effective Date, and in one installment of 20% on April 1, 2009.  The terms and conditions of the Stock Grant shall be set forth in the Stock Award Agreement for the Stock Grant, which shall be in the form of Appendix A hereto (the "Stock Award Agreement").

	Bonus

The Employee shall be entitled to participate in any bonus programs established by the Chief Executive or the Compensation Committee, so long as the Employee is an employee in good standing with the Company on the date of any bonus payment, including a target bonus (the "Target Bonus") with a potential to achieve a stretch bonus in case of extraordinary performance (the "Stretch Bonus").  All bonus programs, as well as the goals for achieving the Target Bonus and the Stretch Bonus, are at the discretion of the Board or the Compensation Committee. 

For 2007, the Target Bonus shall be up to 50% of Total Salary Earned (as defined below), and the Stretch Bonus shall be up to 100% of Total Salary Earned.  For 2008 and thereafter, the Target Bonus shall be up to 70% of Total Salary Earned and the Stretch Bonus shall be up to 130% of Total Salary Earned.  For purposes of this Agreement, the term "Total Salary Earned" for a year shall mean the aggregate amount of the compensation earned as salary by the Employee from the Company for such year.

	Confidential Information, Non-Competition and Non-Solicitation

The Employee agrees to execute and be covered by the terms of the Company's standard Confidential Information, Invention and Non-Competition Agreement upon the commencement of employment with the Company, which shall be in the form of Appendix B hereto.

	Death

If the Employee dies during the Employment Term, then the Employment Term shall terminate, and thereafter the Company shall not have any further liability or obligation to the Employee, the Employee's executors, administrators, heirs, assigns or any other person claiming under or through the Employee, under this Agreement, except that the Employee's estate shall receive any unpaid Salary that has accrued through the date of termination, and except as provided in the Stock Award Agreement with respect to the Stock Grant.

	Total Disability

If the Employee becomes "totally disabled," then the Employment Term shall terminate, and thereafter the Company shall have no further liability or obligation to the Employee under this Agreement, except that the Employee shall receive (a) any unpaid Salary that has accrued through the date of termination, (b) continued Salary for one month following the date the Employee is considered totally disabled, and (c) whatever benefits that the Employee may be entitled to receive under any then existing disability benefit plans of the Company, and except as provided in the Stock Award Agreement with respect to the Stock Grant.

The term "totally disabled" means: (a) if the Employee is considered totally disabled under the Company's group disability plan in effect at that time, if any, or (b) in the absence of any such plan, under applicable Social Security regulations.

	Termination for Cause

The Company may terminate the Employee for "cause" immediately upon notice from the Company.  If the Employee is terminated for "cause", then the Employment Term shall terminate and thereafter the Company shall not have any further liability or obligation to the Employee under this Agreement, except that the Employee shall receive any unpaid Salary that has accrued through the date of termination.  

The term "cause" means: (a) the Employee is convicted of a felony, or (b) in the reasonable determination of the Board, the Employee has done any one of the following: (1) committed an act of fraud, embezzlement, or theft in connection with the Employee's duties in the course of his employment with the Company, (2) caused intentional, wrongful damage to the property of the Company, (3) materially breached (other than by reason of illness, injury or incapacity) the Employee's obligations under this Agreement or under any written confidentiality, non-competition, or non-solicitation agreement between the Employee and the Company, that the Employee shall not have remedied within 30 days after receiving written notice from the Board specifying the details of the breach, or (4) engaged in gross misconduct or gross negligence in the course of the Employee's employment with the Company.

	Termination by the Employee

The Employee may terminate this Agreement by giving the Company written notice of termination one month in advance of the termination date.  The Company may waive this notice period and set an earlier termination date.  If the Employee terminates this Agreement, then on the termination date, the Employment Term shall terminate and thereafter the Company shall have no further liability or obligation to the Employee under this Agreement, except that the Employee shall receive any unpaid Salary that has accrued through the termination date.  After the termination date, the Employee shall be required to adhere to the covenants against non-competition and non-solicitation described in Section 8 of this Agreement.

	Termination without Cause by the Company

The Company may terminate the Employee without "cause" by giving the Employee written notice of termination one month in advance of the termination date.  The Employee may waive this notice period and set an earlier termination date.  If the Employee is terminated without "cause," then the Employment Term shall terminate and thereafter the Employee shall be entitled only to the following under this Agreement: 

	the Company will pay to the Employee a lump sum severance payment in the amount equal to the sum of (i) 12 months of the Salary then in effect, and (ii) the value of the premium cost to the Company to continue the Employee on the Company's group life and AD&D policy for the 12 month period following the Employee's termination date;  and 
	the Employee's group healthcare coverage will be continued for 12 months, at the Employee's normal contribution rates, and
	the periods for Employee's covenants against non-competition (as described in Section 8 of this Agreement) shall be reduced by 50%, from the period contained in the Agreement referred to in Section 7 above, and
	the Employee will not receive any bonus payments, unless the termination date is within 60 days of the bonus payment date, and
	as provided in the Stock Award Agreement with respect to the Stock Grant, and
	the Employee and the Company will enter into a mutual general release.

	Change of Control

In the event a Change of Control occurs during the Employment Term, on the date of the Change of Control, the Employee shall become 100% vested in the Stock Grant.

For purposes of this Agreement, the term "Change of Control" shall mean the consummation of any of the following events:

	any sale, lease, exchange, or other transfer of all or substantially all of the assets of the Company to any other person or entity other than a wholly-owned subsidiary of the Company (in one transaction or a series of related transactions);
	dissolution or liquidation of the Company;
	when any person or entity, including a "group" as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of more than 50% of the outstanding shares of the Company's voting securities (based upon voting power), or
	any reorganization, merger, consolidation, or similar transaction or series of transactions that results in the record holders of the voting stock of the Company immediately prior to such transaction or series of transactions holding immediately following such transaction or series of transactions less than 50% of the outstanding shares of any of the voting securities (based upon voting power) of any one of the following: (1) the Company, (2) any entity which owns (directly or indirectly) the stock of the Company, (3) any entity with which the Company has merged, or (4) any entity that owns an entity with which the Company has merged.

	Governing Law/Jurisdiction

This Agreement is governed by Pennsylvania law.  Any disputes, actions, claims or causes of action arising out of or in connection with the terms of this Agreement or the employment relationship between the Company and the Employee shall be subject to the exclusive jurisdiction of the United States District Court for the Eastern District of Pennsylvania or the Pennsylvania state courts located in Montgomery County.

	Entire Agreement; Amendments

This Agreement sets forth the entire understanding among the parties hereto, and shall supercede all prior employment, severance and change of control agreements, including the 2004 Employment Agreement, and any related agreements that the Employee has with the Company or any subsidiary, or any predecessor company.

This Agreement may not be modified or amended in any way except by a written amendment executed by the Employee and the Company.

	No Assignment

All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit and be enforceable by the respective heirs, representatives, successors (including any successor as a result of a merger or similar reorganization) and assigns of the parties hereto, except that the duties and responsibilities of the Employee hereunder are of a personal nature and shall not be assignable in whole or in part by the Employee.

	Jury Trial Waiver

The parties hereby agree that they shall and do waive trial by jury in any action, proceeding or counterclaim, whether at law or at equity, brought by either of them, or in any manner whatsoever, which arises out of or is connected in any way with this Agreement or with the employment relationship established between them.

 

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have hereunto duly executed this Employment Agreement as of the day and year first written above.

	
NUTRISYSTEM, INC.:

By:/s/ Michael J. Hagan
Name:Michael J. Hagan

Title:Chairman and CEO

EMPLOYEE:

/s/ Thomas F. Connerty

Name:Thomas F. Connerty

	 

APPENDIX A

NUTRISYSTEM, INC.

2000 EQUITY INCENTIVE PLAN FOR EMPLOYEES

STOCK AWARD AGREEMENT

(Thomas F. Connerty)

APPENDIX B

NONDISCLOSURE AND NONCOMPETE AGREEMENT

FOR MANAGEMENT EMPLOYEES

(Thomas F. Connerty)NUTRISYSTEM, INC.

2000 EQUITY INCENTIVE PLAN FOR EMPLOYEES

STOCK AWARD AGREEMENT

(Thomas F. Connerty)

This STOCK AWARD AGREEMENT, dated as of November 30, 2007 (the "Date of Grant"), is delivered by NutriSystem, Inc. (the "Company") to Thomas F. Connerty (the "Grantee").

RECITALS

A.The Company and Grantee entered into an Employment Agreement, dated November 30, 2007 (the "Employment Agreement"), which sets forth the terms and conditions of the Grantee's employment with the Company.  Among the Company's obligations under the Employment Agreement is to issue the Grantee a restricted stock grant for shares of the common stock of the Company that will be equivalent to the number of shares of common stock of the Company that is equal to $2.0 million divided by the closing price per share of the common stock of the Company on the effective date of the Employment Agreement (the "Stock Grant").

B.The NutriSystem, Inc. 2000 Equity Incentive Plan for Employees (the "Plan") provides for the grant of stock awards in accordance with the terms and conditions of the Plan.  

C.To satisfy the Company's obligations with respect to the Stock Grant, the Compensation Committee of the Board of Directors of the Company (the "Committee") has decided to issue the Stock Grant under the Plan.  The Grantee may receive a copy of the Plan by contacting the Corporate Controller.

D.The Grantee has accepted this stock award as satisfaction of the Company's obligations with respect to the Stock Grant.

NOW, THEREFORE, the parties to this Agreement, intending to be legally bound hereby, agree as follows:

	Stock Award Grant.  Subject to the terms and conditions set forth in this Agreement and the Plan, the Committee hereby grants the Grantee 79,523 shares of common stock of the Company, subject to the restrictions set forth below and in the Plan ("Restricted Stock") and acknowledges payment by the Grantee of $79.52 ($0.001 per share) for the Restricted Stock.  Shares of Restricted Stock may not be transferred by the Grantee or subjected to any security interest until the shares have become vested pursuant to this Agreement and the Plan.

	Vesting and Nonassignability of Restricted Stock.

	Except as provided in Paragraphs 2(b), 2(c) and 2(c), the shares of Restricted Stock shall become vested, and the restrictions described in Paragraphs 2(d) and 2(e) shall lapse, according to the following vesting schedule, if the Grantee continues to be employed by, or provide service to, the Company or any subsidiary of the Company (the "Employer") from the Date of Grant until the applicable vesting date:

(i)80% of the shares subject to the Restricted Stock shall become vested as follows: 20% on each of the first, second, third and fourth anniversaries of the Date of Grant (the "Annual Vesting Shares").

(ii)the remaining 20% of the shares subject to the Restricted Stock shall become vested on April 1, 2009 (the "April 2009 Vesting Shares").

The vesting of the shares subject to the Restricted Stock shall be cumulative, but shall not exceed 100% of the shares subject to the Restricted Stock.  If the foregoing schedule would produce fractional shares, the number of shares that vest shall be rounded down to the nearest whole share.  The Restricted Stock shall become fully vested on the fourth anniversary of the Date of Grant if the Grantee is employed by, or providing service to, the Employer on such date.

	If the Grantee ceases to be employed by, or providing service to, the Employer on account of a termination by the Employer for any reason other than (i) "cause" (as defined in the Employment Agreement), (ii) the Grantee becoming "totally disabled" (as defined in the Employment Agreement), or (iii) death of the Grantee, then the Annual Vesting Shares that would have vested within the 12 month period following such termination of employment if the vesting schedule under Paragraph 2(a)(i) were based on a monthly vesting schedule, as opposed to the annual vesting schedule, over the four year period from the Date of Grant shall become vested on the date of such termination of employment.
	If the Grantee ceases to be employed by, or providing service to, the Employer on account of (i) a termination because the Grantee becomes "totally disabled" (as defined in the Employment Agreement), or (ii) death of the Grantee, then the Annual Vesting Shares that would have vested within the six (6) month period following such termination of employment if the vesting schedule under Paragraph 2(a)(i) were based on a monthly vesting schedule, as opposed to the annual vesting schedule, over the four year period from the Date of Grant shall become vested on the date of such termination of employment.
	If a "Change of Control" (as defined in the Employment Agreement) occurs while the Grantee is employed by, or providing service to, the Employer, the Annual Vesting Shares and the April 2009 Vesting Shares shall become fully vested on the date of the Change of Control.
	Except as otherwise provided in this Paragraph 2, if the Grantee's employment or service with the Employer terminates for any reason before the Restricted Stock is fully vested, the shares of Restricted Stock that are not then vested shall be forfeited and must be immediately returned to the Company, and the Company shall pay to the Grantee, as consideration for the return of the non-vested shares, the lesser of $0.001 per share or the fair market value (as defined in the Plan) of a share of common stock of the Company on the date of the forfeiture, for each returned share.
	During the period before the shares of Restricted Stock vest (the "Restriction Period"), the non-vested shares of Restricted Stock may not be assigned, transferred, pledged or otherwise disposed of by the Grantee.  Any attempt to assign, transfer, pledge or otherwise dispose of the shares contrary to the provisions hereof, and the levy of any execution, attachment or similar process upon the shares, shall be null, void and without effect.

	Issuance of Certificates.

	Stock certificates representing the Restricted Stock may be issued by the Company and held in escrow by the Company until the Restricted Stock vests, or the Company may hold non-certificated shares until the Restricted Stock vests.  During the Restriction Period, the Grantee shall receive any cash dividends or other distributions paid with respect to the shares of Restricted Stock and may vote the shares of Restricted Stock.  In the event of a dividend or distribution payable in stock or other property or a reclassification, split up or similar event during the Restriction Period, the shares or other property issued or declared with respect to the non-vested shares of Restricted Stock shall be subject to the same terms and conditions relating to vesting as the shares to which they relate.
	When the Grantee obtains a vested right to shares of Restricted Stock, a certificate representing the vested shares shall be issued to the Grantee, free of the restrictions under Paragraph 2 of this Agreement.
	The obligation of the Company to deliver shares upon the vesting of the Restricted Stock shall be subject to all applicable laws, rules, and regulations and such approvals by governmental agencies as may be deemed appropriate to comply with relevant securities laws and regulations.

	Dissolution or Liquidation; Sale or Merger.  The provisions of the Plan applicable to a dissolution, liquidation, sale or merger of the Company shall apply to the Restricted Stock, and, in the event of a dissolution, liquidation, sale or merger of the Company, the Committee may take such actions as it deems appropriate pursuant to the Plan, subject to the provisions of Paragraph 2(d) of this Agreement.

	Grant Subject to Plan Provisions.  This grant is made pursuant to the Plan, the terms of which are incorporated herein by reference, and in all respects shall be interpreted in accordance with the Plan.  The grant is subject to interpretations, regulations and determinations concerning the Plan established from time to time by the Committee in accordance with the provisions of the Plan, including, but not limited to, provisions pertaining to (i) rights and obligations with respect to withholding taxes, (ii) the registration, qualification or listing of the shares, (iii) changes in capitalization of the Company, and (iv) other requirements of applicable law.  The Committee shall have the authority to interpret and construe the grant pursuant to the terms of the Plan, and its decisions shall be conclusive as to any questions arising hereunder.

	Withholding.  The Grantee shall be required to pay to the Employer, or make other arrangements satisfactory to the Employer to provide for the payment of, any federal, state, local or other taxes that the Employer is required to withhold with respect to the grant or vesting of the Restricted Stock.  Subject to Committee approval, the Grantee may elect to satisfy any tax withholding obligation of the Employer with respect to the Restricted Stock by having shares withheld up to an amount that does not exceed the minimum applicable withholding tax rate for federal (including FICA), state, local and other tax liabilities.  Notwithstanding anything to the contrary in the Plan or this Agreement, until the Grantee has satisfied the Employer's withholding obligation with respect to the shares of Restricted Stock as described in this Paragraph 6, the Grantee shall not have any rights to sell or transfer any shares that have become vested pursuant to Paragraph 2.

	Restrictions on Sale or Transfer of Shares.

	The Grantee will not sell, transfer, pledge, donate, assign, mortgage, hypothecate or otherwise encumber the shares underlying this grant unless the shares are registered under the Securities Act of 1933, as amended (the "Securities Act"), or the Company is given an opinion of counsel reasonably acceptable to the Company that such registration is not required under the Securities Act.
	The Grantee agrees to be bound by the Company's policies regarding the limitations on the transfer of the shares subject to this grant after the expiration of the Restriction Period, and understands that there may be certain times during the year that the Grantee will be prohibited from selling, transferring, pledging, donating, assigning, mortgaging, hypothecating or otherwise encumbering the shares.

	Forfeiture for Dishonesty.  Notwithstanding anything to the contrary in the Plan or this Agreement, if the Committee finds, by a majority vote, after full consideration of the facts presented on behalf of both the Employer and the Grantee, that the Grantee has been engaged in fraud, embezzlement, theft, commission of a felony or dishonest conduct in the course of the Grantee's employment or retention by the Employer that damaged the Employer or that the Grantee has disclosed trade secrets of the Employer, the Grantee shall forfeit any portion of the Restricted Stock that has not vested and all vested shares subject to this grant with respect to which the Company has not yet delivered share certificates.  The decision of the Committee in interpreting and applying the provisions of this Paragraph shall be final.  No decision of the Committee shall affect the finality of the discharge or termination of such Grantee by the Employer in any manner.

	No Employment or Other Rights.  This grant shall not confer upon the Grantee any right to be retained by or in the employ or service of the Employer and shall not interfere in any way with the right of the Employer to terminate the Grantee's employment or service at any time.  The right of the Employer to terminate at will the Grantee's employment or service at any time for any reason is specifically reserved.

	Assignment by Company.  The rights and protections of the Company hereunder shall extend to any successors or assigns of the Company and to the Company's parents, subsidiaries, and affiliates.  This Agreement may be assigned by the Company without the Grantee's consent.

	Applicable Law.  The validity, construction, interpretation and effect of this instrument shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflicts of laws provisions thereof.

	Notice.  Any notice to the Company provided for in this instrument shall be addressed to the Company in care of the President at the corporate headquarters of the Company, and any notice to the Grantee shall be addressed to such Grantee at the current address shown on the payroll of the Employer, or to such other address as the Grantee may designate to the Employer in writing.  Any notice shall be delivered by hand, sent by telecopy or enclosed in a properly sealed envelope addressed as stated above, registered and deposited, postage prepaid, in a post office regularly maintained by the United States Postal Service.

IN WITNESS WHEREOF, the Company has caused its duly authorized officers to execute and attest this instrument, and the Grantee has placed his or her signature hereon, effective as of the Date of Grant.

NUTRISYSTEM, INC.

Attest:

/s/ Kathleen SimoneBy: /s/ Michael J. Hagan
Name: Michael J. Hagan

Title: Chairman and CEO

 

I hereby accept the grant of Restricted Stock described in this Agreement, and I agree to be bound by the terms of the Plan and this Agreement.  I hereby further agree that all of the decisions and determinations of the Committee shall be final and binding.

 
/s/ Thomas F. Connerty

Grantee

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