Nutrisystem 2011 Annual Report Download - page 62

certain false and misleading statements contained in Nutrisystem’s Proxy Statement; (2) the defendants breached
their fiduciary duties in connection with the Board of Directors’ compensation practices; (3) the defendants
breached their fiduciary duties in connection with the Company’s failure to respond to the negative “say-on-pay”
vote; and (4) as a result of the foregoing the defendants were unjustly enriched at the expense of the Company.
Accordingly, the complaint asks the court to (1) award judgment against the defendants and in favor of the
Company for an unspecified amount of damages sustained by the Company as a result of defendants’ violation of
state law, (2) grant extraordinary equitable and/or injunctive relief as necessary or permitted by law, equity and
the statutory provisions cited in the complaint, including disgorgement, attachment, impoundment, imposition of
a constructive trust on or otherwise restricting the disposition/exercise of improvidently awarded executive
compensation based upon false financial reporting and/or the proceeds of defendants’ trading activities or their
other assets so as to ensure that plaintiff on behalf of the Company has an effective remedy; (3) order the
implementation and administration of internal controls and systems at the Company designed to prohibit and
prevent excessive and/or unwarranted executive compensation payments to the Company’s chief executive, chief
financial, and other senior executive officers; (4) award to plaintiff the costs and disbursements of the action,
including reasonable attorneys’ fees, and accountants’ and expert fees, costs and expenses; and (5) grant such
other and further relief as the court deems just and proper. On October 21, 2011 the defendants filed a motion to
dismiss the complaint pursuant to Rules 12(b)(6) and 23.1 of the Federal Rules of Civil Procedure for failure to
state a claim upon which relief can be granted and for failure to adequately plead demand futility. On
November 21, 2011 plaintiff filed his brief in opposition to the defendants’ motion to dismiss the complaint and
alleged that the directors issued false and misleading statements in the Company’s proxy statement by stating that
the Company adhered to a pay-for-performance policy when in fact it did not. In its opposition brief, plaintiff
abandoned the count contained in its complaint that the defendants breached their fiduciary duties in connection
with the Company’s failure to respond to the negative “say-on-pay” vote. On December 5, 2011 defendants filed
their reply brief in support of their motion to dismiss the complaint. The court has scheduled a preliminary
pretrial conference for March 8, 2012. The Company believes that the claims are without merit and intends to
defend the litigation vigorously.
On September 1, 2011, a lawsuit was filed by another stockholder in the Court of Common Pleas of Montgomery
County, 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. This action stems from the same failed “say-on-pay”
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 2011-24985 and specifically alleges that (1) the defendants breached their fiduciary duties
in connection with the issuance of certain materially false and misleading statements and omissions of fact in
Nutrisystem’s Proxy Statement; (2) the defendants breached their fiduciary duties in connection with the
Company’s excessive 2010 executive compensation and the failure to rescind such compensation in response to
the negative “say-on-pay” vote; and (3) as a result of the foregoing the executive defendants were unjustly
enriched at the expense of the Company. Accordingly, the complaint asks the court to (1) determine that the
action is a proper derivative action maintainable under the law and that demand is excused; (2) award judgment
against the defendants and in favor of the Company for an unspecified amount of damages sustained by the
Company as a result of defendants’ breaches of fiduciary duties; (3) grant injunctive and other equitable relief as
necessary or permitted by law, equity and the statutory provisions cited in the complaint, including disgorgement,
attachment, impoundment, imposition of a constructive trust on or otherwise restricting the disposition/exercise
of disloyally awarded 2010 executive compensation; (4) direct the Company to take all necessary actions to
reform and improve its corporate governance and internal procedures to comply with all applicable laws and to
protect the Company and its stockholders from a repeat of the damaging events described in the Complaint;
(5) award to plaintiff the costs and disbursements of the action, including reasonable allowance of fees and costs
for plaintiff’s attorneys, experts and accountants; and (6) grant such other and further relief as the court deems
just and proper. On November 10, 2011, the defendants filed preliminary objections to the complaint asserting
(1) the court should decline to exercise subject matter jurisdiction over the action pursuant to Pennsylvania Rule
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