GNC 2008 Annual Report Download - page 101

Table of Contents
GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
million. The Company typically seeks and has obtained contractual indemnification from most parties that supply raw materials for its products
or that manufacture or market products it sells. The Company also typically seeks to be added, and has been added, as additional insured
under most of such parties' insurance policies. The Company is also entitled to indemnification by Numico for certain losses arising from claims
related to products containing ephedra or Kava Kava sold prior to December 5, 2003. However, any such indemnification or insurance is limited
by its terms and any such indemnification, as a practical matter, is limited to the creditworthiness of the indemnifying party and its insurer, and
the absence of significant defenses by the insurers. The Company may incur material products liability claims, which could increase its costs
and adversely affect its reputation, revenues and operating income.
Ephedra (Ephedrine Alkaloids). As of February 29, 2008, the Company has been named as a defendant in 2 pending cases involving the
sale of third-party products that contain ephedra. Of those cases, one involves a proprietary GNC product. Ephedra products have been the
subject of adverse publicity and regulatory scrutiny in the United States and other countries relating to alleged harmful effects, including the
deaths of several individuals. In early 2003, the Company instructed all of its locations to stop selling products containing ephedra that were
manufactured by GNC or one of its affiliates. Subsequently, the Company instructed all of its locations to stop selling any products containing
ephedra by June 30, 2003. In April 2004, the FDA banned the sale of products containing ephedra. All claims to date have been tendered to the
third-party manufacturer or to the Company insurer and the Company has incurred no expense to date with respect to litigation involving
ephedra products. Furthermore, the Company is entitled to indemnification by Numico for certain losses arising from claims related to products
containing ephedra sold prior to December 5, 2003. All of the pending cases relate to products sold prior to such time and, accordingly, the
Company is entitled to indemnification from Numico for all of the pending cases.
Pro-Hormone/Androstenedione Cases. The Company is currently defending against five lawsuits (the "Andro Actions") relating to the sale
by GNC of certain nutritional products alleged to contain the ingredients commonly known as Androstenedione, Androstenediol,
Norandrostenedione, and Norandrostenediol (collectively, "Andro Products"). These five lawsuits were filed in California, New Jersey,
Pennsylvania, and Florida.
In each of the five cases, plaintiffs have sought, or are seeking, to certify a class and obtain damages on behalf of the class representatives
and all those similarly-situated who purchased certain nutritional supplements from the Company alleged to contain one or more Andor
Products.
On April 17 and 18, 2006, the Company filed pleadings seeking to remove each of the Andro Actions to the respective federal district
courts for the districts in which the respective Andro Actions are pending. At the same time, the Company filed motions seeking to transfer each
of the Andro Actions to the United States District Court for the Southern District of New York based on "related to" bankruptcy jurisdiction, as
one of the manufacturers supplying them with Andro Products, and to whom they sought indemnity, MuscleTech Research and Development,
Inc. ("MuscleTech"), filed bankruptcy. The Company was successful in removing the New Jersey, New York, Pennsylvania, and Florida Andro
Actions to federal court and transferring these actions to the United States District Court for the Southern District of New York based on
bankruptcy jurisdiction. The California case was not removed and remains pending in state court.
Following the conclusion of the MuscleTech Bankruptcy case, plaintiffs, in September 2007, filed a stipulation dismissing all claims related
to the sale of MuscleTech products in the four cases currently pending in the Southern District of New York (New Jersey, New York,
Pennsylvania, and Florida). Additionally, plaintiffs have filed motions with the Court to remand these actions to their respective state courts,
asserting that the federal court is divested of jurisdiction because the MuscleTech bankruptcy action is no longer pending. The motions to
remand remain pending before the District Court. A more detailed description, listed by original stated court proceeding and current style,
follows:
• Harry Rodriguez v. General Nutrition Companies, Inc. (previously pending in the Supreme Court of the State of New York, New York
County, New York, Index No. 02/126277 and currently styled 97