GNC 2008 Annual Report Download - page 36

Table of Contents
cash value of $10.00 valid toward any purchase of $25.00 or more at a GNC store. The coupons will not be redeemable by any GNC Gold Card
member during Gold Card Week and will not be redeemable for products subject to any other price discount. The coupons are to be redeemed
at point of sale and are not mail-in rebates. They will be redeemable for a 90-day period from the date of issuance. We also agreed to donate
100,000 coupons to the United Way. In addition to the cash reimbursements and coupons, as part of the settlement we paid legal fees of
approximately $1.0 million and incurred advertising and postage costs of approximately $0.4 million in 2006. Additionally, as of June 30, 2007,
an accrual of $0.3 million existed for additional advertising and postage costs related to the notification letters. The deadline for class members
to opt out of the settlement class or object to the terms of the settlement was July 6, 2006. A final fairness hearing took place on January 27,
2007. As of February 29, 2008, there had been 651 claims forms submitted. Due to the uncertainty that exists as to the extent of future sales to
the purchasers, the coupons are an incentive for the purchasers to buy products or services from us (at a reduced gross margin). Accordingly,
the Company will recognize the settlement by reducing revenue in future periods when the purchasers utilize the coupons.
Franklin Publications. On October 26, 2005, General Nutrition Corporation was sued in the Common Pleas Court of Franklin County,
Ohio by Franklin Publications, Inc. The case was subsequently removed to the United States District Court for the Southern District of Ohio,
Eastern Division. At the end of February, 2008, the case was settled. The lawsuit was based upon the GNC subsidiary's termination, effective
as of December 31, 2005, of two contracts for the publication of two monthly magazines mailed to certain GNC customers. Franklin was
seeking a declaratory judgment as to its rights and obligations under the contracts and monetary damages for the GNC subsidiary's alleged
breach of the contracts. Franklin also alleged that the GNC subsidiary had interfered with Franklin's business relationships with the advertisers
in the publications, who were primarily GNC vendors, and had been unjustly enriched. We believe that the settlement will not have a material
adverse effect on our business or financial condition.
Wage and Hour Claim. On August 11, 2006, the Company and General Nutrition Corporation, one of the Company's wholly owned
subsidiaries, were sued in federal district court for the District of Kansas by Michelle L. Most and Mark A. Kelso, on behalf of themselves and all
others similarly situated. The lawsuit purports to certify a nationwide class of GNC store managers and assistant managers and alleges that
GNC failed to pay time and a half for working more than 40 hours per week. Plaintiffs contend that the Company and General Nutrition
Corporation improperly applied fluctuating work week calculations and procedures for docking pay for working less than 40 hours per week
under a fluctuating work week. In May 2007, the parties entered into a settlement of the claims, which is subject to court approval. On or about
July 3, 2007, the Company sent a notice to all potential claimants, who may then elect to opt in to the settlement. While the actual settlement
amount will be based on the number of claimants who actually opt in to participate in the settlement, if approved by the court, the settlement
contemplates a maximum total payment by the Company of $1.9 million if all potential claimants opt in. Based on the number of actual opt-ins,
the total amount paid in the third quarter of 2007 to the class is approximately $0.1 million. In addition, the Company paid the plaintiffs' counsel
an agreed amount of $0.7 million for attorneys' fees following approval by the court of the settlement. On July 23, 2007, the court approved the
settlement of claims as fair, reasonable, and adequate and entered its Order of Approval. The total amount paid to the class approximated
$0.1 million. Final Judgment was entered by the Court on December 18, 2007 disposing of the claims of the opt-in plaintiffs.
California Wage and Break Claim. On April 24, 2007, Kristin Casarez and Tyler Goodell filed a lawsuit against us in the Superior Court of
the State of California for the County of Orange. We removed the lawsuit to the United States District Court for the Central District of California.
Plaintiffs purport to bring the action on their own behalf, on behalf of a class of all current and former non-exempt employees of GNC
throughout the State of California employed on or after August 24, 2004, and as private attorney general on behalf of the general public.
Plaintiffs allege that they and members of the putative class were not provided all of the rest periods and meal periods to which they were
entitled under California law, and further allege that GNC failed to pay them split shift and overtime compensation to which they were entitled
under California law. We intend to vigorously oppose class certification. Based on the information
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