Nutrisystem 2010 Annual Report Download - page 58

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. The complaint sought
(1) judgment against all defendants, (2) equitable and/or injunctive relief as permitted by law, equity and the state
statutory provisions, (3) restitution to Nutrisystem from the individual defendants, (4) an award to the plaintiffs
of the costs and disbursements of the action and (5) such other relief as the court deemed just and proper.
Following receipt of additional correspondence from the same attorney in February 2008, the Board of Directors
was considering its response when the shareholder 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 parties reached an agreement to stay this matter pending
the disposition of the motion to dismiss the federal securities putative class action complaint described above. On
April 30, 2010, the Court sent the plaintiff a notice to terminate pursuant to Pennsylvania’s Rules of Civil
Procedure for inactive cases. The plaintiff took no action and, on October 1, 2010, the Court closed this case.
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 him for overtime work 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 had been
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. The
plaintiff sought (1) that the action be certified as a collective action pursuant to Section 216(b) of the Fair Labor
Standards Act, (2) that the action be certified as a class action pursuant to Rule 23 of the Federal Rules of Civil
Procedure, (3) actual damages for unpaid overtime, (4) liquidated damages, (5) attorneys’ fees and costs and
(6) pre- and post-judgment interest. The Court dismissed the state-law class claim on July 25, 2008. On
September 26, 2008, the Court granted plaintiff’s motion to proceed as a collective action and to send class
members notice under the Fair Labor Standards Act claim. On October 14, 2008, plaintiff’s counsel mailed
notice to potential class members. Including plaintiff, sixty-eight former and current sales representatives
opted-in to this litigation. On July 24, 2009, the Court heard oral argument on the motions for summary judgment
that the parties had previously filed, and 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. The plaintiffs filed
an appeal of the Court’s Order, and several employee rights organizations and the U.S. Department of Labor filed
amicus curiae briefs in this matter. On June 21, 2010, the United States Court of Appeals for the Third Circuit
held oral argument on plaintiffs’ appeal and on September 7, 2010 affirmed the District Court’s grant of
summary judgment for the Company. On October 4, 2010, the Third Circuit denied plaintiffs’ petition for
rehearing by the original Third Circuit panel and a rehearing en banc. On October 12, 2010, the Third Circuit
delivered its certified judgment to the District Court. On November 15, 2010, the District Court granted summary
judgment in favor of the Company against all plaintiffs. This matter is now closed.
The Company is also involved in other various claims and routine litigation matters. In the opinion of
management, after consultation with legal counsel, the outcome of such matters is 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. During 2010, a new pricing and food purchase agreement with a food supplier was executed which
requires advance payments to the supplier. Advances through December 31, 2010 were $15,240. The Company
anticipates it will meet all annual purchase obligations.
54