Nutrisystem 2005 Annual Report Download - page 19

We use spokespersons to promote our products. If these spokespersons suffer adverse publicity, our
revenue could be adversely affected.
Our marketing strategy depends in part on celebrity spokespersons, such as Zora Andrich and Kat Carney,
as well as customer spokespersons to promote our weight management program. Any of these spokespersons
may become the subject of adverse news reports, negative publicity or otherwise be alienated from a segment of
our customer base, whether weight loss related or not. If so, such events may reduce the effectiveness of his or
her endorsement and, in turn, adversely affect our revenue and results of operations.
If we cannot protect and enforce our trademarks and other intellectual property rights, our brand and our
business will suffer.
We believe that our trademarks and other proprietary rights are important to our success and competitive
position. The actions we take to establish and protect our trademarks and other proprietary rights may prove to be
inadequate to prevent imitation of our products or services or to prevent others from claiming violations of their
trademarks and proprietary rights by us. In addition, others may develop similar trademarks or other intellectual
property independently or assert rights in our trademarks and other proprietary rights. If so, third parties may
seek to block or limit sales of our products and services based on allegations that use of some of our marks or
other intellectual property constitutes a violation of their intellectual property rights. If we cannot protect our
trademarks and other intellectual property rights, or if our trademarks or other intellectual property rights infringe
the rights of third parties, the value of our brand may decline, which would adversely affect our results of
operations.
We are dependent on our Chief Executive Officer and other key executive officers for future success.
Our future success depends to a significant degree on the skills, experience and efforts of Michael J. Hagan,
our Chief Executive Officer, and other key executive officers. The loss of the services of any of these individuals
could harm our business. Only two of our key executive officers, George Jankovic and Thomas F. Connerty,
have employment agreements with us. In addition, we have not obtained life insurance on any key executive
officers. If any key executive officers left us or were seriously injured and became unable to work, the business
could be harmed.
Development of our Slim and Tone business may have a negative impact on our core business.
Development of our Slim and Tone business may require us to divert some of our capital resources and
management’s time away from our weight management business. Since our Slim and Tone franchisees are
independent third parties with their own financial objectives, actions taken by them, including breaches of their
contractual obligations, may have negative impact on both our Slim and Tone and NutriSystem brands. Further,
if we have to deal with disputes with our Slim and Tone franchisees regarding operations and other contractual
issues, our management’s attention could be diverted which could have an adverse affect on our core business.
Our Slim and Tone subsidiary is subject to franchise law and regulations that govern its status as a
franchisor and regulates aspects of its franchise relationships. Slim and Tone’s ability to develop facilities
and to enforce contractual rights against its franchisees may be adversely affected by these laws and
regulations, which could cause its franchise revenue to decline and adversely affect our growth strategy.
Slim and Tone is subject to federal and state laws and regulations, including the regulations of the Federal
Trade Commission (the “FTC”), as well as similar authorities in individual states and other jurisdictions, in
connection with the offer, sale and termination of Slim and Tone franchises and the regulation of the franchisor-
franchisee relationship. Failure to comply with these laws could subject both Slim and Tone and us to liability to
franchisees and to fines or other penalties imposed by governmental authorities. In addition, we may become
subject to litigation with, or other claims filed with state or federal authorities by, Slim and Tone franchisees
based on alleged unfair trade practices, implied covenants of good faith and fair dealing, payment of royalties,
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