Nutrisystem 2011 Annual Report Download - page 61

Total rent expense for 2011, 2010 and 2009 was $3,136, $3,540 and $3,269, respectively.
Litigation
Commencing on October 9, 2007, several putative class action suits were filed in the United States District Court
for the Eastern District of Pennsylvania naming Nutrisystem, Inc. and certain of its officers and directors as
defendants and alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The
complaints purported to bring claims on behalf of a class of persons who purchased the Company’s common
stock between February 14, 2007 and October 3, 2007 or October 4, 2007. The complaints alleged that the
defendants issued various materially false and misleading statements relating to the Company’s projected
performance that had the effect of artificially inflating the market price of its securities. These actions were
consolidated in December 2007 under docket number 07-4215, and a consolidated amended complaint was filed
on March 7, 2008 that raised the same claims but alleged a class period of February 14, 2007 through
February 19, 2008. The consolidated amended complaint asked the court to (1) certify a class, (2) award
compensatory damages, reasonable costs and expenses and (3) grant such other and further relief as the court
deemed just and proper. The defendants filed a motion to dismiss on May 6, 2008 that was granted by the Court
on August 31, 2009. On September 29, 2009, plaintiff filed a notice of appeal, and on May 19, 2010, upon
motion by the plaintiff/appellant, the appeal was dismissed with prejudice without costs to either party. The
dismissal is final.
On April 27, 2010, counsel for a stockholder sent a letter relating to the same events that formed the bases of the
federal putative class action described above. Specifically, the stockholder has demanded, pursuant to Delaware
Chancery Court Rule 23.1, that the Board of Directors (1) undertake (or cause to be undertaken) an independent
internal investigation into violations of Delaware law committed by Company management during the time
periods described above and (2) commence a civil action against each member of management to recover for the
benefit of the Company the amount of damages sustained by the Company as a result of their breaches of
fiduciary duties described above. The Board of Directors appointed a special committee consisting of three
independent directors to investigate this demand. The special committee engaged independent legal counsel to
assist it in this investigation. In April 2011, the special committee, with the assistance of independent legal
counsel, completed its investigation and delivered to the Board of Directors the special committee’s
recommendation that the Company refuse the demands made in the stockholder’s letter. At its April 2011
meeting, the Board of Directors, after deliberation and discussion, unanimously determined to accept the special
committee’s recommendation as in the best interests of the Company and its stockholders. Promptly thereafter,
the special committee’s counsel delivered to the stockholder’s counsel a letter informing counsel of the Board of
Directors’ actions and the Company’s decision to refuse the stockholder’s demands. In May 2011, the
stockholder’s counsel sent a letter to the Company’s counsel demanding to inspect and make copies of certain
specified books, records, minutes and other documents of the Company for the purposes set forth in such
letter. Without waiving any of its rights to challenge the propriety of such purposes under Delaware law, in early
June 2011, the Company delivered to the stockholder’s counsel copies of certain minutes of the Board of
Directors and the special committee according to the terms of a confidentiality agreement that the Company and
the stockholder had executed. The Company has not received any further correspondence or communications
from the stockholder or his counsel since that time.
On August 5, 2011, a lawsuit was filed by a stockholder in the United States District Court for the Eastern
District of Pennsylvania naming Nutrisystem, Inc., certain of its officers and directors, and one of its former
officers as defendants and alleging breaches by defendants of their fiduciary duties of candor, good faith and
loyalty, unjust enrichment, and aiding and abetting from 2010 to the present in connection with the award of
excessive and unwarranted 2010 executive compensation. Plaintiff specifically claims the action to be a failed
“say-on-pay” shareholder derivative action stemming from the advisory, non-binding vote of the Company’s
stockholders at its May 12, 2011 annual meeting in which the Company’s stockholders did not approve the
Company’s 2010 executive compensation. The complaint is listed under docket number 2:11-cv-05036-PD and
specifically alleges that (1) the defendants breached their fiduciary duties in connection with the issuance of
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