Nutrisystem 2009 Annual Report Download - page 59

Inc., name certain of its officers and a majority of the current Board of Directors as defendants. The federal
complaints allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims for
breach of fiduciary duty, waste, and unjust enrichment against all defendants and insider selling against certain
defendants. The complaints are based on many of the same allegations as the putative class action described
above but add contentions regarding the Company’s buyback program. The two federal actions were
consolidated in December 2007 under docket number 07-4565, and an amended complaint was filed on
March 14, 2008 naming a majority of the current Board of Directors as defendants and certain current and former
officers. Defendants filed a motion to dismiss on May 13, 2008. The plaintiffs’ opposition was filed on July 14,
2008, and defendants’ reply was filed on August 13, 2008. The motion has been fully briefed, and oral argument
was held on November 24, 2008. On October 26, 2009, the Court granted defendants’ motion to dismiss.
A shareholder derivative action was also filed in the Common Pleas Court of Montgomery County, Pennsylvania,
in November 2007. Like the federal derivative action, the state court action is nominally brought on behalf of the
Company and names a majority of the current Board of Directors as defendants. This action has been stayed. The
Company believes that the claims are without merit and intends to defend the litigation vigorously.
The Company received in November 2007 correspondence from an attorney purporting to represent a
Nutrisystem shareholder. This correspondence requested that the Company’s Board of Directors appoint a special
litigation committee to investigate unspecified breaches of fiduciary duty. The disinterested and independent
board members met to discuss this issue and responded to the attorney’s correspondence. Following receipt of
additional correspondence from the same attorney in February 2008, the Board of Directors was considering its
response when the shareholder represented by this attorney commenced a derivative lawsuit in the Court of
Common Pleas of Montgomery County, Pennsylvania in the name of the Company against the entire Board of
Directors at that time and certain current and former officers. The Board of Directors responded to the attorney’s
correspondence. The parties have reached an agreement to stay this matter pending the disposition of the
anticipated motion to dismiss the federal securities putative class action complaint. The Company believes that
the claims are without merit and intends to defend the litigation vigorously.
On March 28, 2008, a former Nutrisystem, Inc. sales representative filed a putative collective action complaint in
the United States District Court for the Eastern District of Pennsylvania, docket no. 08-1508, alleging that the
Company unlawfully failed to pay overtime in violation of the Fair Labor Standards Act. The complaint
purported to bring claims on behalf of a class of current and former sales representatives who were compensated
by the Company pursuant to a commission-based compensation plan, rather than on an hourly basis. The plaintiff
filed an amended complaint on May 28, 2008, adding a state-law class claim under the Pennsylvania Minimum
Wage Act, alleging that the Company’s compensation plan also violated state law. On June 11, 2008, the
Company answered the amended complaint and moved to dismiss the plaintiff’s state-law class claim. On
June 11, 2008, the plaintiff filed a motion to proceed as a collective action and sent class members notice under
the Fair Labor Standards Act claim. On July 25, 2008, the Court granted the Company’s motion to dismiss with
respect to the state law claim. On September 26, 2008, the Court granted plaintiff’s motion to proceed as a
collective action and facilitate notice. On October 8, 2008, the Court entered a Stipulation and Order approving
proposed notice of a collective action lawsuit. On October 14, 2008, plaintiff’s counsel mailed notice to potential
class members. Including plaintiff, fifty-four former sales representatives and fourteen current sales
representatives have opted-in to this litigation. On March 9, 2009, the Company filed a motion for summary
judgment on plaintiffs’ claims. On June 22, 2009, plaintiffs filed their response in opposition to the Company’s
motion for summary judgment and cross-motion for summary judgment. On July 6, 2009, the Company filed its
reply in further support of its motion for summary judgment. Thereafter, on July 22, 2009, plaintiffs filed their
reply in further support of their cross-motion for summary judgment. The Court heard oral argument on the
cross-motions for summary judgment on July 24, 2009. On July 31, 2009, the Court entered an Order granting
the Company’s motion for summary judgment and denying plaintiffs’ cross-motion for summary judgment. On
September 10, 2009, plaintiffs filed an appeal of the Court’s Order granting the Company’s motion for summary
judgment and denying plaintiffs’ cross-motion for summary judgment. On January 4, 2010, plaintiffs filed their
brief in support of their appeal. On January 7, 2010, several employee rights organizations filed an amicus curiae
55