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GNC HOLDINGS, INC.
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 03/19/2009
Filed Period 12/31/2008

Table of contents

  • Page 1
    GNC HOLDINGS, INC. 10-K Annual report pursuant to section 13 and 15(d) Filed on 03/19/2009 Filed Period 12/31/2008

  • Page 2
    ... filer þ (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes þ No As of March 1, 2009, all of the registrant's common equity was privately held, and there was no public market for the registrant...

  • Page 3

  • Page 4
    ... Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions and Director Independence Principal Accountant Fees and Services 123 127 153 156 158 Market for Registrant's Common Equity...

  • Page 5
    ... changes in applicable laws relating to our franchise operations; and our inability to expand our franchise operations or attract new franchisees. Consequently, such forward-looking statements should be regarded solely as our current plans, estimates and beliefs. You should not place undue reliance...

  • Page 6
    ...ITEM 1. BUSINESS. GNC With our worldwide network of over 6,600 locations and our www.gnc.com website, we are the largest global specialty retailer of health and wellness products, including vitamins, minerals and herbal supplements ("VMHS") products, sports nutrition products, and diet products. We...

  • Page 7
    ... members of our management. Refer to Note 1, "Nature of Business," to our consolidated financial statements included in this report for additional information. GNC Parent Corporation was formed in November 2006 to acquire all the outstanding common stock of GNC Corporation. General Nutrition Centers...

  • Page 8
    ... to the International Health, Racquet & Sportsclub Association. We believe that the growing number of fitness-oriented consumers, at increasingly younger ages, are interested in taking sports nutrition products to increase energy, endurance, and strength during exercise and to aid recovery after...

  • Page 9
    ...the United States (all 50 states, the District of Columbia, and Puerto Rico); 160 company-owned stores in Canada; 954 domestic franchised stores; 1,190 international franchised stores in 44 markets; and 1,712 GNC "store-within-a-store" locations under our strategic alliance with Rite Aid Corporation...

  • Page 10
    ...nutrition stores, we entered into a strategic alliance in December 1998 with Rite Aid to open our GNC store-within-a-store locations. Through this strategic alliance, we generate revenues from fees paid by Rite Aid for new store-within-a-store openings, sales to Rite Aid of our products at wholesale...

  • Page 11
    ... as well as franchised stores and Rite Aid locations. Our distribution fleet delivers our finished goods and third-party products through our distribution centers to our company-owned and domestic franchised stores on a weekly or biweekly basis depending on the sales volume of the store. Each of our...

  • Page 12
    ... work with our vendors to ensure a steady flow of preferred products that are made available exclusively to our channel for a period of time. During 2008, we targeted our product development efforts on specialty vitamins, women's nutrition, sports nutrition and condition specific products. Research...

  • Page 13
    ... segment generates revenues primarily from sales of products to customers at our company-owned stores in the United States and Canada, and through our website, www.gnc.com. Locations As of December 31, 2008, we operated 2,774 company-owned stores across all 50 states and in Canada, Puerto Rico, and...

  • Page 14
    ... operate the store as a company-owned store or re-franchise the location. The offering and sale of our franchises in the United States are regulated by the FTC and various state authorities. See "-Government Regulation-Franchise Regulation." International Franchises Revenues from our international...

  • Page 15
    ... and supply of Rite Aid private label products for distribution to Rite Aid locations. We use our available capacity at these facilities to produce products for sale to third-party customers. The principal raw materials used in the manufacturing process are natural and synthetic vitamins, herbs...

  • Page 16
    ... generate revenues from sales to Rite Aid of our products at wholesale prices, the manufacture of Rite Aid private label products, retail sales of certain consigned inventory and license fees. We are Rite Aid's sole supplier for the PharmAssure® vitamin brand and a number of Rite Aid private label...

  • Page 17
    .... These license agreements generally continue in existence until the expiration of the licensed patent, if applicable, the licensee's election to terminate the agreement, or the mutual consent of the parties. The patents which we own generally have a term of 20 years from their filing date, although...

  • Page 18
    ... regulations and three states enacted laws restricting the promotion and distribution of ephedra-containing dietary supplements. The botanical ingredient ephedra was formerly used in several third-party and private label dietary supplement products. In January 2003, we began focusing our diet...

  • Page 19
    ... the new regulations, companies with less than 500 employees have until June 2009 to comply, and companies with fewer than 20 employees have until June 2010 to comply. Our third-party suppliers or vendors who are not already compliant may not be able to comply with the new rules without incurring...

  • Page 20
    ... as a dietary supplement company as part of the existing registration requirements and update this information annually, provide a list of all dietary supplement products they sell and a copy of the labels and update this information annually, and report all adverse events related to dietary...

  • Page 21
    ...stores are purchased by franchisees directly from other vendors and these products do not flow through our distribution centers. Although franchise contracts contain strict requirements for store operations, including compliance with federal, state, and local laws and regulations, we cannot exercise...

  • Page 22
    ... to franchise terms and charges, royalties, and other fees; and place new stores near existing franchises. To date, these laws have not precluded us from seeking franchisees in any given area and have not had a material adverse effect on our operations. Bills intended to regulate certain aspects...

  • Page 23
    ...-party nutritional supplements. We may not be able to compete effectively and our attempt to do so may require us to reduce our prices, which may result in lower margins. Failure to effectively compete could adversely affect our market share, revenues, and growth prospects. Unfavorable publicity...

  • Page 24
    ... our product offerings from those of our competitors. If we do not introduce new products or make enhancements to meet the changing needs of our customers in a timely manner, some of our products could become obsolete, which could have a material adverse effect on our revenues and operating results...

  • Page 25
    ...as our Executive Vice President and Chief Financial Officer. Effective as of January 13, 2009, Joseph J. Weiss, Senior Vice President of Merchandising, was no longer employed by us. We will continue to enhance our management team as necessary to strengthen our business for future growth. Although we...

  • Page 26
    ... orders could result in substantial monetary penalties, which could have a material adverse effect on our financial condition or results of operations. We may incur material product liability claims, which could increase our costs and adversely affect our reputation, revenues, and operating income...

  • Page 27
    ... laws, regulations, or permit requirements. Because we rely on our manufacturing operations to produce nearly all of the proprietary products we sell, disruptions in our manufacturing system or losses of manufacturing certifications could adversely affect our sales and customer relationships...

  • Page 28
    ...markets in the United States and other countries that are not currently saturated with the products we offer. If we are unable to open additional franchised locations, we will have to sustain additional growth internally by attracting new and repeat customers to our existing locations. Our operating...

  • Page 29
    ..., state, and international laws regulating the offer and sale of franchises and the governance of our franchise relationships. These laws impose registration, extensive disclosure requirements, and bonding requirements on the offer and sale of franchises. In some jurisdictions, the laws relating to...

  • Page 30
    ... to general adverse economic and industry conditions; require us to use all or a large portion of our cash flow from operations to pay principal and interest on our debt, thereby reducing the availability of our cash flow to fund working capital, research and development efforts, capital...

  • Page 31
    ...events, as that term is defined in the indentures governing the Senior Toggle Notes and the 10.75% Senior Subordinated Notes, we will be required to make an offer to repurchase all or any part of each holder's notes at a price equal to 101% of the principal thereof, plus accrued interest to the date...

  • Page 32
    ... our franchised stores in the United States and Canada are located on premises we lease and then sublease to our respective franchisees. All of our franchised stores in the remaining international markets are owned or leased directly by our franchisees. No single store is material to our operations...

  • Page 33
    ..., our company-owned and franchised stores in the United States and Canada (excluding store-within-a-store locations) and our other international franchised stores consisted of: CompanyOwned Retail United States and Canada Franchise Alabama Alaska Arizona Arkansas California Colorado Connecticut...

  • Page 34
    Hong Kong India Indonesia Israel Korea Kuwait Lebanon Malaysia Mexico Mongolia Nigeria Oman Pakistan Panama Peru Philippines Qatar Saudi Arabia Singapore South Korea Taiwan Thailand Turkey UAE Ukraine Venezuela Total 43 27 33 2 6 4 5 43 292 1 2 2 6 5 38 40 2 34 57 111 26 29 51 6 4 34 1,188 28

  • Page 35
    ... material products liability claims, which could increase its costs and adversely affect our reputation, revenues and operating income. Pro-Hormone/Androstenedione Cases. We are currently defending six lawsuits (the "Andro Actions") relating to the sale by GNC of certain nutritional products alleged...

  • Page 36
    ... 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...

  • Page 37
    ... returned to GNC after expiration, with the franchise bearing the loss; (2) requiring franchised stores to purchase new or experimental products, effectively forcing the franchisees to provide free market research; (3) using the Gold Card program to collect information on franchised store customers...

  • Page 38
    ... and Charles DiMauro filed a personal injury Complaint against General Nutrition Corporation in Circuit Court for Dade County Florida. Plaintiffs allege that Laura DiMauro's use and consumption of a non-GNC product called "Up Your Gas" resulted in liver failure that required a liver transplant in...

  • Page 39
    ..., less than 110% of fair market value), generally vest over a five-year vesting schedule, and expire after ten years from date of grant. If any award granted under the 2007 Plan expires, terminates, is canceled, or is forfeited for any reason, the number of shares underlying such award will...

  • Page 40
    Table of Contents Plan category Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total (1) Number of securities to be issued upon exercise of outstanding options, warrants and rights 8,883,6921 Weighted-average exercise price of ...

  • Page 41
    ... of purchase accounting, the fair values of our assets on the date of the Merger became their new cost basis. You should read the following financial information together with the information under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and...

  • Page 42
    ... 2004 Statement of Operations Data: Revenue: Retail Franchising Manufacturing/Wholesale Total revenue Cost of sales, including costs of warehousing, distribution and occupancy Gross profit Compensation and related benefits Advertising and promotion Other selling, general and administrative Other...

  • Page 43
    ...'s equity Other Data: Net cash provided by (used in) operating activities Net cash used in investing activities Net cash (used in) provided by financing activities Capital expenditures Number of stores (at end of period): Company-owned stores (3) Franchised stores (3) Store-within-a-store locations...

  • Page 44
    ...period balance Franchised stores Domestic Beginning of period balance Store openings Store closings (b) End of period balance International Beginning of period balance Store openings Store closings End of period balance Store-within-a-store (Rite Aid) Beginning of period balance Store openings Store...

  • Page 45
    ... from international operations will be driven by increased royalties on franchise retail sales and increased product sales to our franchisees. • Manufacturing/wholesale revenues are generated through sales of manufactured products to third parties, generally for third-party private label brands...

  • Page 46
    ... our corporate operating standards, and key performance indicators of our domestic franchise stores are more in line with our corporate store results. We continue to see growth in sales of our GNC brand products, which has helped to strengthen the franchise system. Our international franchise system...

  • Page 47
    ... alliance with Rite Aid through December 31, 2014, with Rite Aid committing to open 1,125 new store-withina-store locations by that date. We currently have over 1,700 locations inside Rite Aid stores. We believe that the strength of our company and its leadership position in the health and wellness...

  • Page 48
    ... to a different mall or shopping center, or converted to a franchised store or a company-owned store, sales from that store up to and including the closing day or the day immediately preceding the relocation or conversion are included as same store sales as long as the store was open during the same...

  • Page 49
    ... selling, general and administrative expenses Amortization expense Foreign currency loss (gain) Other expense Merger-related costs Total operating expenses Operating income: Retail Franchise Manufacturing / Wholesale Unallocated corporate and other costs: Warehousing and distribution costs Corporate...

  • Page 50
    ... a result of increased product sales and royalties. Our international franchise store base increased by 112 stores to 1,190 at December 31, 2008 compared to 1,078 at December 31, 2007. Manufacturing/Wholesale. Revenues in our Manufacturing/Wholesale segment, which includes third-party sales from our...

  • Page 51
    ... costs, as a percentage of net revenue, were 13.0% for the year ended December 31, 2008 and 13.1% for the year ended December 31, 2007. Selling, General and Administrative ("SG&A") Expenses Our consolidated SG&A expenses, including compensation and related benefits, advertising and promotion...

  • Page 52
    ... operating income is $5.7 million of non-cash expense from amortization of inventory step up to fair value due to the Merger. This increase was primarily the result of improved margins on our third-party contract sales and increases in Rite Aid license fee revenue. Warehousing and Distribution Costs...

  • Page 53
    ...This increase is due to increases in our international franchise revenue of $11.3 million as a result of higher product sales and royalties, offset by a $2.4 million decrease in domestic franchise revenue, the result of operating 68 fewer domestic franchise stores in the year ended December 31, 2007...

  • Page 54
    ... in our stores to support the higher sales and the 44 new locations added since December 31, 2006; (2) $3.6 million in increased health care costs; (3) $2.2 million in workers compensation expense; and (4) other compensation and related benefits accounts of $0.4 million. Advertising and promotion...

  • Page 55
    ... of purchase accounting from the Merger; and (2) $34.6 million of fees and expenses associated with the Merger and $15.3 million of compensation related costs associated with the Merger, which included $9.6 million of option related payments and associated payroll taxes, $3.8 million of non-cash...

  • Page 56
    ...47.0 million increase in working capital was primarily driven by increases in cash, inventory and prepaid and other current assets offset by increases in accrued interest and current portion of long-term debt. We expect to fund our operations through internally generated cash and, if necessary, from...

  • Page 57
    ... expenditures, acquisitions, and other corporate purposes. We expect our primary uses of cash in the near future will be debt service requirements, capital expenditures and working capital requirements. We currently anticipate that cash generated from operations, together with amounts available...

  • Page 58
    ...Credit Agreement requires that 100% of the net cash proceeds from certain asset sales, casualty insurance, condemnations and debt issuances, and a specified percentage of excess cash flow for each fiscal year must be used to pay down outstanding borrowings. GNC Corporation, our direct parent company...

  • Page 59
    ... for U.S. federal income tax purposes. We may redeem some or all of the Senior Notes at any time at specified redemption prices. If we experience certain kinds of changes in control, we must offer to purchase the notes at 101% of par plus accrued interest to the purchase date. The Senior Notes...

  • Page 60
    ... all of the Senior Subordinated Notes at any time at specified redemption prices. If we experience certain kinds of changes in control, we must offer to purchase the Senior Subordinated Notes at 101% of par plus accrued interest to the purchase date. The Senior Subordinated Notes indenture contains...

  • Page 61
    ... costs, $5.0 million of required spending for website redesign and $12.3 million related to a management services agreement. In connection with the Merger, we entered into a management services agreement with our parent, GNC Acquisition Holdings Inc., pursuant to which we agreed to pay an annual fee...

  • Page 62
    ... in our financial statements require management to use estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Our accounting policies are...

  • Page 63
    ...a review of historical customer returns. We recognize revenues on product sales to franchisees and other third parties when the risk of loss, title and insurable risks have transferred to the franchisee or third-party. We recognize revenues from franchise fees at the time a franchised store opens or...

  • Page 64
    ..., recent global events could have a negative effect on our business and operating results which could affect the valuation of our intangibles. Leases We have various operating leases for company-owned and franchised store locations and equipment. Store leases generally include amounts relating to...

  • Page 65
    ... will be sustained on audit, including resolution of any related appeals or litigation processes. The second step requires us to measure the tax benefit of the tax position taken, or expected to be taken, in an income tax return as the largest amount that is more than 50% likely of being realized...

  • Page 66
    ... to evaluate the nature and financial effects of the business combination. SFAS 141R also amends SFAS 109, Accounting for Income Taxes and acquired tax contingencies after January 1, 2009, even for business combinations completed before this date. SFAS 141R is effective for fiscal years beginning...

  • Page 67
    ... 2008, we entered into two new forward agreements with start dates of the expiration dates of the pre-existing interest rate swap agreements (April 2009 and April 2010). During September 2008, we entered into a new interest rate swap agreement with an effective date of September 30, 2008 that...

  • Page 68
    Table of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. TABLE OF CONTENTS Page Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets As of December 31, 2008 and December 31, 2007 Consolidated Statements of Operations and Comprehensive Income (Loss) For...

  • Page 69
    ... Registered Public Accounting Firm To the Shareholder and Board of Directors of General Nutrition Centers, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income, of stockholder's equity and of cash flows...

  • Page 70
    ...of Contents Report of Independent Registered Public Accounting Firm To the Shareholder and Board of Directors of General Nutrition Centers, Inc.: In our opinion, the accompanying consolidated statements of operations and comprehensive income (loss), of stockholder's equity and of cash flows present...

  • Page 71
    ..., net (Note 7) Property, plant and equipment, net (Note 8) Deferred financing fees, net (Note 2) Other long-term assets (Note 9) Total long-term assets Total assets Current liabilities: Accounts payable Accrued payroll and related liabilities (Note 10) Accrued income taxes (Note 5) Accrued interest...

  • Page 72
    ..., 2007 2006 Revenue Cost of sales, including costs of warehousing, distribution and occupancy Gross profit Compensation and related benefits Advertising and promotion Other selling, general and administrative Foreign currency loss (gain) Merger-related costs (Note 1) Other expense Operating income...

  • Page 73
    ... from selling shareholder Balance at March 15, 2007 Successor GNC Corporation investment in General Nutrition Centers, Inc Return of capital to GNC Corporation Non-cash stock-based compensation Net income Unrealized loss on derivatives designated and qualified as cash flow hedges, net of tax of...

  • Page 74
    ... of intangibles Store acquisition costs Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of new equity Return of capital to Parent company Contribution from selling shareholders Restricted payment made by General Nutrition Centers, Inc. to GNC Corporation Common...

  • Page 75
    ... and Puerto Rico and in addition the Company offers products domestically through www.gnc.com and www.drugstore.com. Franchise stores are located in the United States and 49 international markets. The Company operates its primary manufacturing facilities in South Carolina and distribution centers in...

  • Page 76
    ...Contents GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2007 consolidated federal tax return. The Merger agreement requires payments to former shareholders and optionholders in lieu of income tax payments made for utilizing net operating...

  • Page 77
    ... have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America and with the instructions to Form 10-K and Regulation S-X. The Company's normal reporting period is based on a calendar year. The financial statements as of December 31...

  • Page 78
    ...FIFO") basis. Cost is determined using a standard costing system which approximates actual costs. The Company regularly reviews its inventory levels in order to identify slow moving and short dated products, expected length of time for product sell through and future expiring product. Upon analysis...

  • Page 79
    ... capitalized in accordance with the policies outlined above. Repair and maintenance costs incurred in the normal operations of business are expensed as incurred. Gains from the sale of property, plant and equipment are recognized in current operations. The Company recognized depreciation expense of...

  • Page 80
    ... the Gold Card program to the revenue deferral during the twelve month membership period. For an annual fee, the card provides customers with a 20% discount on all products purchased, both on the date the card is purchased and certain specified days of every month. The Company also sells gift cards...

  • Page 81
    ... of selling-related expenses of $26.4 million, a contract termination fee paid to our previous owner of $7.5 million and other costs of $0.7 million. Leases. The Company has various operating leases for company-owned and franchised store locations and equipment. Store leases generally include...

  • Page 82
    ...a 112,000 square foot distribution center in Phoenix, Arizona. The Company conducts additional manufacturing that it performs for wholesalers or retailers of third-party products, and until the sale of the Australia facility, had additional warehousing at leased facilities located in New South Wales...

  • Page 83
    ... related to uncertain tax positions as a component of income tax expense. See Note 5 for additional information regarding the change in unrecognized tax benefits. Self-Insurance. The Company has procured insurance for such areas as: (1) general liability; (2) product liability; (3) directors...

  • Page 84
    ... Company entered into two new forward agreements with start dates of the expiration dates of the pre-existing interest rate swap agreements (April 2009 and April 2010). In addition, during the third quarter of 2008, the Company entered into a new interest rate swap agreement with an effective date...

  • Page 85
    ...with early application prohibited. SFAS 141R also amends SFAS No. 109, "Accounting for Income Taxes", such that adjustments made to deferred taxes and acquired tax contingencies after January 1, 2009, even for business combinations completed before this date, will impact net income. The Company will...

  • Page 86
    ... accounts Related party $ $ NOTE 4. INVENTORIES Inventories at each respective period consisted of the following: 88,913 4,278 (4,147) 369 89,413 $ $ 83,107 4,768 (3,337) 128 84,666 December 31, 2008 Gross cost Reserves (in thousands) Net Carrying Value Finished product ready for sale Work...

  • Page 87
    ...GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 5. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used...

  • Page 88
    ...which applies to all open tax positions accounted for in accordance with SFAS 109. This Interpretation is intended to result in increased relevance and comparability in financial reporting of income taxes and to provide more information about the uncertainty in income tax assets and liabilities. The...

  • Page 89
    ...within the next 12 months. The Company files a consolidated federal tax return and various consolidated and separate tax returns as prescribed by the tax laws of the state and local jurisdictions in which it operates. The Company has been audited by the Internal Revenue Service, ("IRS"), through its...

  • Page 90
    ...and general recognition of the product lines. The Gold Card program was assigned a final fair value representing the underlying customer listing, for both the Retail and Franchise segments. The retail agreements were assigned a final fair value reflecting the opportunity to expand the Company stores...

  • Page 91
    ...GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the Company's goodwill activity. Retail Franchising Manufacturing/ Wholesale (in thousands) Total Predecessor Balance at December 31, 2006 Acquired franchise stores Balance...

  • Page 92
    ... Gold Card Retail Brand Franchise Operating Brand Agreements (in thousands) Franchise Rights Total Predecessor Balance at December 31, 2006 Acquired franchise stores Amortization expense Balance at March 15, 2007 Successor Balance at March 16, 2007 Purchase accounting adjustments Acquired franchise...

  • Page 93
    ... in a partnership that owns and manages the building that houses the Company's corporate headquarters. The Company occupies the majority of the available lease space of the building. The general partner is responsible for the operation and management of the property and reports the results of the...

  • Page 94
    ... Annual maturities of the Company's long term and current (see current portion in Note 6, "Other Current Assets") franchise notes receivable at December 31, 2008 are as follows: Years ending December 31, Receivables (in thousands) 2009 2010 2011 2012 2013 Total NOTE 10. ACCRUED PAYROLL AND RELATED...

  • Page 95
    ...31, 2008 (in thousands) December 31, 2007 Deferred revenue Payable to former shareholders Accrued occupancy Accrued worker compensation Accrued taxes Accrued settlements Other current liabilities Total Deferred revenue consists primarily of Gold Card and gift card deferrals. 89 $ $ 32,465 12,954...

  • Page 96
    ... GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 12. LONG-TERM DEBT / INTEREST In conjunction with the Merger, the Company repaid certain of its existing debt, and issued new debt. The new debt, which was entered into or issued on the closing...

  • Page 97
    Table of Contents GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Company's net interest expense for ... Call premiums Deferred financing fees Deferred fee writedown- early extinguishment 2007 Senior credit facility Term Loan Revolver Senior Toggle ...

  • Page 98
    ... Agreement requires that 100% of the net cash proceeds from certain asset sales, casualty insurance, condemnations and debt issuances, and a specified percentage of excess cash flow for each fiscal year must be used to pay down outstanding borrowings. GNC Corporation, the Company's direct parent...

  • Page 99
    ... or all of the Senior Toggle Notes at any time at specified redemption prices. If the Company experiences certain kinds of changes in control, it must offer to purchase the notes at 101% of par plus accrued interest to the purchase date. The Senior Toggle Notes indenture contains certain limitations...

  • Page 100
    ... were required to be exchanged for publicly registered exchange notes within 210 days after the sale of these notes. As required, these notes were registered and the exchange offer was completed on September 28, 2007. The Company expects to fund its operations through internally generated cash and...

  • Page 101
    ...of cash on hand, to repay a portion of the indebtedness under the prior $285.0 million term loan facility. As of December 31, 2007, the balance has been fully paid. The Company issues letters of credit as a guarantee of payment to third-party vendors in accordance with specified terms and conditions...

  • Page 102
    ... costs may be included in the rental payment or charged in addition to rent. Other lease expenses relate to and include distribution facilities, transportation equipment, data processing equipment and automobiles. As the Company is the primary lessee for the majority of the franchise store locations...

  • Page 103
    ...its financial condition and operating results. As a manufacturer and retailer of nutritional supplements and other consumer products that are ingested by consumers or applied to their bodies, the Company has been and is currently subjected to various product liability claims. Although the effects of...

  • Page 104
    ... material products liability claims, which could increase its costs and adversely affect its reputation, revenues and operating income. Pro-Hormone/Androstenedione Cases. The Company is currently defending six lawsuits (the "Andro Actions") relating to the sale by GNC of certain nutritional products...

  • Page 105
    ... returned to GNC after expiration, with the franchise bearing the loss; (2) requiring franchised stores to purchase new or experimental products, effectively forcing the franchisees to provide free market research; (3) using the Gold Card program to collect information on franchised store customers...

  • Page 106
    ..., inventory commitments and spending for website redesign, $12.3 million management services agreement and bank fees and $3.0 million related to future litigation costs. Other commitments related to the Company's business operations cover varying periods of time and are not significant. All...

  • Page 107
    ... Contents GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In addition to the foregoing, the Company is subject to numerous federal, state, local, and foreign environmental and health and safety laws and regulations governing its operations, including...

  • Page 108
    ... number of shares of our Parent's Class A common stock reserved and available for the 2007 Plan is 10.4 million shares. Stock options under the Plan generally are granted with exercise prices at or above fair market value, typically vest over a four or five-year period and expire ten years from date...

  • Page 109
    ...2006, the Board of Directors of the Company and our Parent approved and adopted the GNC Corporation 2006 Omnibus Stock Incentive Plan (the "2006 Plan"). In 2003 the Board approved and adopted the GNC Corporation (f/k/a General Nutrition Centers Holding Company) 2003 Omnibus Stock Incentive Plan (the...

  • Page 110
    ... of cash received from the exercise of stock options for the year ended December 31, 2006 was $0.6 million and the related tax benefit was $0.2 million. As stated above, SFAS 123(R) established a fair-value-based method of accounting for generally all share-based payment transactions. The Company...

  • Page 111
    ...represents the Company's manufacturing operations in South Carolina and Australia and the Wholesale sales business. This segment supplies the Retail and Franchise segments, along with various third parties, with finished products for sale. The Warehousing and Distribution, Corporate Costs, and Other...

  • Page 112
    ... Franchise Manufacturing/Wholesale Unallocated corporate and other costs: Warehousing and distribution costs Corporate costs Merger-related costs Other expense Sub total unallocated corporate and other costs Total operating income (loss) Interest expense, net Income before income taxes Income tax...

  • Page 113
    ...223 174,832 $ $ $ $ $ $ $ $ $ $ $ $ $ $ The following table represents sales by general product category. The category "Other" includes other wellness products sales from the Company's point of sales system and certain required accounting adjustments of $4.7 million for 2008, ($0.6) million for...

  • Page 114
    ...Product sales Royalties Franchise fees Other Total franchise revenue $ $ 209,662 35,147 5,676 7,535 258,020 $ $ 160,665 25,990 3,013 4,228 193,896 $ $ 38,409 7,102 810 916 47,237 $ $ 191,707 32,641 3,532 4,409 232,289 NOTE 21. SUPPLEMENTAL CASH FLOW INFORMATION The Company remitted cash...

  • Page 115
    ... GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 22. RETIREMENT PLANS The Company sponsors a 401(k) defined contribution savings plan covering substantially all employees. Full time employees who have completed 30 days of service and part time...

  • Page 116
    ... deferred compensation plan. The liabilities related to these plans are adjusted based on changes in the fair value of the underlying employeedirected investment choices. Since the employee-directed investment choices are exchange traded equity indexes with quoted prices in active markets, the...

  • Page 117
    ... of Contents GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 24. RELATED PARTY TRANSACTIONS Successor: Management Services Agreement. Upon consummation of the Merger, the Company entered into a services agreement with its Parent, GNC Acquisition...

  • Page 118
    .... SUPPLEMENTAL GUARANTOR INFORMATION As of December 31, 2008 the Company's debt included its 2007 Senior Credit Facility, Senior Toggle Notes and 10.75% Senior Subordinated Notes. The 2007 Senior Credit Facility has been guaranteed by GNC Corporation and the Company's existing and future direct and...

  • Page 119
    ... CENTERS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Supplemental Condensed Consolidating Balance Sheets Parent/ Issuer Combined Guarantor Subsidiaries Combined Non-Guarantor Subsidiaries (in thousands) December 31, 2008 Eliminations Consolidated Current assets Cash...

  • Page 120
    Table of Contents GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Supplemental Condensed Consolidating Balance Sheets Successor December 31, 2007 Parent/ Issuer Combined Guarantor Subsidiaries Combined Non-Guarantor Subsidiaries (in thousands) ...

  • Page 121
    ... costs of warehousing, distribution and occupancy Gross profit Compensation and related benefits Advertising and promotion Other selling, general and administrative Subsidiary (income) expense Other (income) expense Operating income (loss) Interest expense, net Income (loss) before income taxes...

  • Page 122
    ... costs of warehousing, distribution and occupancy Gross profit Compensation and related benefits Advertising and promotion Other selling, general and administrative Subsidiary (income) expense Other (income) expense Operating income (loss) Interest expense, net Income (loss) before income taxes...

  • Page 123
    ... costs of warehousing, distribution and occupancy Gross profit Compensation and related benefits Advertising and promotion Other selling, general and administrative Subsidiary (income) expense Other (income) expense Operating income (loss) Interest expense, net Income (loss) before income taxes...

  • Page 124
    ... Investment/distribution Acquisition of intangible Acquisition of the Company Other investing Net cash provided by (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES: GNC Corporation investment in General Nutrition Centers, Inc Other financing Net cash provided by (used in...

  • Page 125
    ...: Capital expenditures Investment/distribution Acquisition of the Company Other investing Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: GNC Corporation investment in General Nutrition Centers, Inc. Issuance of new equity Borrowings from new senior credit facility...

  • Page 126
    Table of Contents GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Supplemental Condensed Consolidating Statements of Cash Flows Predecessor Period ended March 15, 2007 Parent/ Issuer Combined Combined Guarantor Non-Guarantor Subsidiaries Subsidiaries ...

  • Page 127
    ...NET CASH PROVIDED BY OPERATING ACTIVITIES: CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures Investment/distribution Other investing Net cash provided by (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in GNC Corporation investment in General Nutrition Centers...

  • Page 128
    ... it files or submits under the Exchange Act has been appropriately recorded, processed, summarized and reported on a timely basis and are effective in ensuring that such information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief...

  • Page 129
    ... and Chief Executive Officer Director, President and Chief Merchandising and Marketing Officer Executive Vice President, Chief Financial Officer Senior Vice President and Treasurer Senior Vice President, Chief Legal Officer and Secretary Executive Vice President of Store Operations and Development...

  • Page 130
    ... of International Franchising of General Nutrition International, Inc. in April 2001, having started as a Vice President in March 1994. From 1992 through March 1994, Mr. Steele was Executive Vice President and Chief Operating Officer of the Coffee Beanery, Ltd., a 300-unit gourmet coffee store...

  • Page 131
    ... of Donaldson, Lufkin & Jenrette Securities Corp. Mr. Kaplan currently serves on the boards of directors of Maidenform Brands, Inc., Stream Global Services, Inc., TPEP Holdings, Inc. (Tinnerman Palnut Engineered Products), Orchard Supply Hardware Stores Corporation and Anchor Blue Retail Group...

  • Page 132
    ... employees. Our Code of Ethics is posted on our website at www.gnc.com on the Corporate Governance page of the Investor Relations section of the website. Board Composition and Terms As of February 15, 2009, our board of directors was composed of ten directors. Each director serves for annual terms...

  • Page 133
    ...our compensation structure and policies currently in effect. Generally, the Compensation Committee is empowered to review and approve on an annual basis the corporate goals and objectives with respect to compensation for our Chief Executive Officer; the evaluation process and compensation structure...

  • Page 134
    ...under employment agreements. We have employment agreements with all of our Named Executive Officers with the exception of Mr. Fox. Generally, annual compensation for our Named Executive Officers consists of the following components: • • Base salary. The Compensation Committee uses base salary to...

  • Page 135
    ... Executive Officer was paying for health insurance premiums while employed for a period following the termination of the Named Executive Officer's employment. See "- Employment Agreements and Severance Compensation" for a discussion of the severance payments and benefits our Chief Executive Officer...

  • Page 136
    ... survey information based on corporate and/or average store revenue and geographic location of comparable companies to ensure that we are using valid comparisons. We also use internal value comparisons; however, we do not have any specific point system or rating structure for internal values. Annual...

  • Page 137
    ..., and to receive benefits under, any benefit plans, arrangements, or policies available to employees generally or to our executive officers generally. The fringe benefits for our Chief Executive Officer and President were negotiated in connection with their employment agreements and in some respects...

  • Page 138
    ...($25,000 for our Chief Executive Officer); a financial planning and tax preparation allowance in an annual amount equal to $3,000 ($8,000 for our Chief Executive Officer); and for senior vice presidents located at our headquarters in Pittsburgh, Pennsylvania, a downtown Pittsburgh parking lease with...

  • Page 139
    ... to determine appropriate employment agreement and severance packages for our Named Executive Officers in a manner that we believe will attract and retain qualified executive officers. Chief Executive Officer Compensation Mr. Fortunato's annual compensation is weighted towards variable, performance...

  • Page 140
    ... neither our equity securities nor the equity securities of our direct or indirect parent companies are publicly traded, we are not currently subject to any limitations under Internal Revenue Code Section 162(m). While we are not required to do so, we have structured our compensation programs in...

  • Page 141
    ...Chief Merchandising and Marketing Officer Michael M. Nuzzo Executive Vice President and Chief Financial Officer8 Thomas Dowd Executive Vice President of Store Operations and Development Michael Locke Senior Vice President of Manufacturing J. Kenneth Fox Interim Chief Financial Officer9 Year Salary...

  • Page 142
    .... For additional information, see Note 18 under the heading "Stock-Based Compensation Plans" of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008. The amounts reflect the accounting expense for these...

  • Page 143
    ... to reduction for required withholding tax. (6) Perquisites include cash amounts received by certain 2008 Named Executive Officers for, or in reimbursement of, supplemental medical, supplemental retirement, parking, professional assistance, car allowance, financial services assistance and the...

  • Page 144
    ... Plans" of the Notes to the Company's Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008. All Other Option Awards: Number of Securities Underlying Options (#)(2) Exercise or Base Price of Option Awards ($/Sh) Grant Date...

  • Page 145
    ... for 2006 and 2007 pursuant to rules issued by the Internal Revenue Service under Section 409A of the Internal Revenue Code) on a future date selected by the employee at the time the employee first elects to defer compensation under the plan, or to a retirement account, which is payable (subject to...

  • Page 146
    ... salary based upon our attainment of annual goals established by the Company Board or the Compensation Committee. The employment agreement also provides that Mr. Fortunato will receive certain fringe benefits and perquisites similar to those provided to our other executive officers. The employment...

  • Page 147
    ... within the six months prior to, or at any time following, an initial public offering of our Parent's common stock). For purposes of Mr. Fortunato's employment agreement, "cause" generally means any of the following events as determined in good faith by a 2/3 vote of the Parent Board, Mr. Fortunato...

  • Page 148
    ... her appointment as President and Chief Merchandising and Marketing Officer. The employment agreement was amended, effective January 1, 2009, to comply with Section 409A of the Internal Revenue Code of 1986, as amended. The employment agreement provides for an employment term through January 2, 2010...

  • Page 149
    ... her principal place of business of more than 100 miles; or our failure to appoint her Chief Executive Officer in the event Mr. Fortunato ceases to serve as Chief Executive Officer of us or our Parent. 143 For purposes of Ms. Kaplan's employment agreement, "good reason" generally means, without Ms...

  • Page 150
    ...and Chief Financial Officer. The employment agreement provides for a two-year term with automatic one-year renewals thereafter unless we or Mr. Nuzzo provide at least 30 days' advance notice of termination. Mr. Nuzzo is entitled to a base salary in the amount of $400,000, subject to annual review by...

  • Page 151
    ... securities of our Parent entitled to vote generally in the election of the Parent Board; a change in 2/3 of the members of Parent Board from the members on the effective date of the executive's employment agreement, unless approved by (i) 2/3 of the members of the Parent Board on the effective date...

  • Page 152
    ... of the Company Board or the Compensation Committee, a pro rata share of the annual bonus based on actual employment; and continuation of certain welfare benefits and perquisites through the remainder of the agreement term, or two years if the termination occurs upon or within six months following...

  • Page 153
    ... termination. General The employment agreements for all of our 2008 Named Executive Officers contain: • • terms of confidentiality concerning trade secrets and confidential or proprietary information which may not be disclosed by the executive except as required by court order or applicable law...

  • Page 154
    ... our salaried employees. Where applicable, the amounts reflected for the prorated annual incentive compensation in 2008 are the amounts that were actually paid to the 2008 Named Executive Officers in March 2009 under the 2008 Incentive Plan, since the hypothetical termination date is the last day of...

  • Page 155
    ... Chief Executive Officer" for a description of the severance and change in control benefits provided under Mr. Fortunato's employment agreement. As stated above, Mr. Fortunato's employment agreement provides that if any payment would have been subject to or result in the imposition of the excise tax...

  • Page 156
    ... w/o Cause or for Good Reason within 6 Months after a Change in Control ($) Benefit Termination w/o Cause or for Good Reason ($) Voluntary Termination ($) Death or Disability ($) Base Salary Continuation Prorated Annual Incentive Compensation Health & Welfare Benefits Accelerated Vesting of...

  • Page 157
    ... not party to an employment agreement with Mr. Fox. In the event of a change in control of the Company, the 2007 Stock Plan provides that unvested stock options generally may be fully vested, cancelled for fair value or substituted for awards that substantially preserve the applicable terms of the...

  • Page 158
    ... directors to the Company Board effective July 17, 2007. Effective January 2, 2008, we entered into an employment agreement with Beth J. Kaplan in connection with her appointment as our President and Chief Merchandising and Marketing Officer. Ms. Kaplan was appointed as a member of the Company Board...

  • Page 159
    ... the shares beneficially owned by them. In accordance with SEC rules, if a person has a right to acquire beneficial ownership of any shares of our Parent's common stock, on or within 60 days of the Ownership Date, upon exercise of outstanding options or otherwise, the shares are deemed beneficially...

  • Page 160
    ... than 1% of the outstanding shares. The address of each current executive officer is c/o General Nutrition Centers, Inc., 300 Sixth Avenue, Pittsburgh, Pennsylvania 15222. On March 16, 2007, in connection with the Merger, our Parent entered into a stockholders agreement with each of our stockholders...

  • Page 161
    ... Management II, L.P. ("ACOF Management II") and the general partner of ACOF Management II is ACOF Operating Manager II, L.P. ("ACOF Operating Manager II"). ACOF Operating Manager II is indirectly owned by Ares Management which, in turn, is indirectly controlled by Ares Partners Management Company...

  • Page 162
    ... plus accrued and unpaid dividends through the dates of purchase, for an aggregate purchase price of $0.6 million and $0.1 million, respectively. Ms. Kaplan, who serves as a director and as our President and Chief Merchandising and Marketing Officer, is a member of Axcel Managers LLC, the managing...

  • Page 163
    ... place effective March 16, 2007 following the closing of the Merger. Each member of the current board of directors is either an affiliate of one of our Parent's principal stockholders or one of our executive officers. Our board of directors has historically had an audit committee and a compensation...

  • Page 164
    ... 31, 2008 include the assessment of the Company's internal control over financial reporting by PricewaterhouseCoopers. PricewaterhouseCoopers did not bill us any fees during the year ended December 31, 2007, for audit related services. Tax Fees The Tax Fees for the years ended December 31, 2008...

  • Page 165
    Table of Contents PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. (a) Documents filed as part of this report: (1) Financial statements filed in Part II, Item 8 of this report Report of Independent Registered Public Accounting Firm. Consolidated Balance Sheets As of December 31, 2008 and ...

  • Page 166
    ... AND QUALIFYING ACCOUNTS General Nutrition Centers, Inc. and Subsidiaries Valuation and Qualifying Accounts Allowance for Doubtful Accounts(1) Successor Predecessor Year ended March 16January 1Year ended December 31, December 31, March 15, December 31, 2008 2007 2007 2006 (in thousands) Balance at...

  • Page 167
    ... Agreement, dated February 12, 2008, by and among GNC Acquisition Holdings Inc. ("Holdings"), Ares Corporate Opportunities Fund II, L.P., Ontario Teachers' Pension Plan Board and the other stockholders party thereto. (Incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form...

  • Page 168
    ... to the GNC Acquisition Holdings Inc. 2007 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K, filed March 14, 2008.) 10.15 Amended and Restated Employment Agreement, dated as of February 16, 2009, by and between the Company, Holdings and...

  • Page 169
    ....19.2 Amendment No.1 to Employment Agreement, dated as of March 3, 2009, by and among the Company, Holdings and Michael Locke. * 10.20 GNC/Rite Aid Retail Agreement, dated as of December 8, 1998, by and between General Nutrition Sales Corporation and Rite Aid Corporation. (Incorporated by reference...

  • Page 170
    ... Company and the guarantor's party thereto in favor of JPMorgan Chase Bank, N.A., as administrative agent. (Incorporated by reference to Exhibit 10.25 above.) 10.29 Amended and Restated GNC/Rite Aid Agreement, dated as of July 31, 2007, by and between Nutra Sales Corporation (f/k/a General Nutrition...

  • Page 171
    ... by the undersigned, thereunto duly authorized. GENERAL NUTRITION CENTERS, INC. By: /s/ Joseph Fortunato Joseph Fortunato Chief Executive Officer Dated: March 18, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on...

  • Page 172
    ...: /s/ Michele J. Buchignani Michele J. Buchignani Director Dated: March 19, 2009 /s/ Richard D. Innes Richard D. Innes Director Dated: March 18, 2009 /s/ Carmen Fortino Carmen Fortino Director Dated: March 17, 2009 /s/ Beth J. Kaplan Beth J. Kaplan Director Dated: March 16, 2009 165 By: By: By:

  • Page 173
    ...15 AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of February 16, 2009, and effective as of January 1, 2009, by and among GNC Acquisition Holdings Inc., a Delaware corporation ("Holdings"), General Nutrition Centers, Inc...

  • Page 174
    ... its employees generally and in effect from time to time and (y) such lawful rules, regulations, policies, codes of ethics and/or conduct, directions and restrictions as either the Centers Board or the Holdings Board may from time to time reasonably establish or approve for their executive officers...

  • Page 175
    ...provisions of this Agreement, the Executive shall be entitled to participate in, and to receive benefits under, (a) any benefit plans, arrangements, or policies made available by Centers to its executive officers generally, subject to and on a basis consistent with the terms, conditions, and overall...

  • Page 176
    ...event of a termination without Cause (as defined in Section 4.3(g)) or with or without Good Reason (as defined in Section 4.3(h))). The options will be time based and will vest annually over a four (4) year period on each anniversary of the grant date subject to the Executive's continuous employment...

  • Page 177
    ...Executive's current Base Salary and (y) the annualized value of the Perquisites as determined in good faith by the Accounting Firm (as defined in Section 4.3(f)(ii)) using customary valuation methods, payable on the 30th day following the date of termination; (iii) Centers shall pay to the Executive...

  • Page 178
    ...) under this Agreement at any time with no requirement for notice to the Executive. (b) The Executive may resign, and thereby terminate the Executive's employment (and the Employment Period), at any time for "Good Reason," upon not less than sixty (60) days' prior written notice to GNC specifying in...

  • Page 179
    ... in good faith by the Accounting Firm using customary valuation methods. All payments pursuant to Sections 4.3(d)(i) and (ii) shall be made on the 30th day following the date of termination; (iii) Centers shall pay to the Executive a lump sum of two (2) times an amount equal to the average Annual...

  • Page 180
    ...six (36) month period following the date of termination shall immediately vest and become exercisable. (e) As a condition precedent to the Executive's right to receive the benefits set forth in Section 4.3(d) hereof, the Executive agrees to execute a release in substantially the form attached hereto...

  • Page 181
    ...-five (75) days after the Accounting Firm's initial determination under Section 4.3(f)(ii). (iv) The Executive shall give written notice to Centers of any claim by the Internal Revenue Service ("IRS") that, if successful, would require the payment by the Executive of an Excise Tax, such notice to...

  • Page 182
    ... of Centers, which shall not be unreasonably withheld, conditioned or delayed. (v) This Section 4.3(f) shall remain in full force and effect following the termination of the Executive's employment for any reason until the expiration of the statute of limitations on the assessment of taxes applicable...

  • Page 183
    ... services to Centers moves to a new location that is more than 75 miles from the Executive's principal place of business existing on the Effective Date. In the event that the Executive has actual knowledge of an event or occurrence giving the Executive a right to terminate his employment for Good...

  • Page 184
    ...' initial public offering of common stock, solely by virtue of the Stockholders Agreement by and among Holdings, Ares, OTPP, the Executive, and the other parties thereto, as the same may be amended, modified or supplemented from time to time. (2) "Permitted Holder" means Ares, Ares Management...

  • Page 185
    ... voluntarily resign other than for Good Reason and thereby terminate the Executive's employment (and the Employment Period) under this Agreement at any time upon not less than thirty (30) days' prior written notice. (b) In the event the Executive's employment is terminated pursuant to this Section...

  • Page 186
    ... of any such provision of this Agreement, references to a "termination," "termination of employment" or like terms shall mean "separation from service." (c) With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Code...

  • Page 187
    ... is deemed on the date of termination of employment to be a "specified employee", within the meaning of that term under Section 409A(a)(2)(B) of the Code and using the identification methodology selected by GNC from time to time, or if none, the default methodology, then: (i) With regard to any...

  • Page 188
    confidential treatment of all Confidential Information. At all times, both during and after the Employment Period, the Executive shall not directly or indirectly: (i) appropriate, download, print, copy, remove, use, disclose, divulge, communicate or otherwise "Misappropriate" (as defined in Section ...

  • Page 189
    ... with Centers and the business relationships, goodwill, work experience, client, customer and vendor relationships and other fruits of employment that the Executive will have the opportunity to obtain, use and develop under this Agreement, the Executive agrees to the restrictive covenants stated in...

  • Page 190
    ... to induce any customer, vendor, supplier, licensor or other Person in a business relationship with any Company Party, for or with which the Executive or employees working under the Executive's supervision had any direct or indirect responsibility or contact during the Employment Period, (A) to do...

  • Page 191
    ...an equity interest other than GNC and its direct and indirect subsidiaries. (c) "Competing Business" means any business that competes with any of the Company Parties, including, without limitation, any enterprise that engages in, owns or operates businesses that market, sell, distribute, manufacture...

  • Page 192
    ..., customer related contacts, lists, identities and prospects, practices, plans, histories, requirements and needs, price information and formulae and information concerning client or customer products, services, businesses or equipment specifications; (5) vendor and supplier related information...

  • Page 193
    ... other legal or commercial entity. (g) "Restricted Period" means the eighteen (18) months after the date of termination of employment. (h) "Work Product" means all patents and patent applications, all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports...

  • Page 194
    ... disclose or release to the Media any information concerning or relating to any aspect of the Executive's employment or termination from employment with Centers and any aspect of any dispute that is the subject of this Agreement. For the purposes of this Agreement, the term "Media" includes...

  • Page 195
    ... however, that the terms of this Section 6.1(b) shall not apply to any documents required to be filed by GNC with the Securities and Exchange Commission (provided that GNC is advised by legal counsel that such disclosure is required in order to comply with GNC's legal obligations thereunder and such...

  • Page 196
    ... construed unfavorably against any of the parties on the ground that the Executive, it, or the Executive's or its counsel was the drafter thereof. As used in this Agreement, unless the context otherwise requires: (a) the terms defined herein shall have the meanings set forth herein for all purposes...

  • Page 197
    ... is by United States registered or certified mail, return receipt requested, postage prepaid, or by other delivery service which provides evidence of delivery, as follows: If to Centers or Holdings, to: General Nutrition Centers, Inc. 300 Sixth Avenue Pittsburgh, PA 15222 Attention: General Counsel...

  • Page 198
    ... any provision of this Agreement, even if indirectly benefited by it. 6.13 Withholding. Any payments provided for hereunder shall be paid net of any applicable withholding required under Federal, state or local law and any additional withholding to which the Executive has agreed. [SIGNATURE PAGE...

  • Page 199
    IN WITNESS WHEREOF, the parties have duly executed this Agreement, to be effective for all purposes as of the Effective Date. GENERAL NUTRITION CENTERS, INC. By: /s/Gerald J. Stubenhofer Name: Gerald J. Stubenhofer Title: Senior Vice President and Chief Legal Officer GNC ACQUISITION HOLDINGS INC. By...

  • Page 200
    EXECUTIVE /s/Joseph M. Fortunato Joseph M. Fortunato

  • Page 201
    EXHIBIT A Current Activities None A-1

  • Page 202
    ... in effect from time to time. A supplemental retirement allowance in an annual amount equal to $25,000, which shall be paid in 26 equal bi-weekly installments each year in accordance with Centers' normal payroll practices and procedures in effect from time to time. A financial planning and tax...

  • Page 203
    ... in accordance with Centers' normal payroll practices and procedures in effect from time to time. Allowance for country club dues and expenses incurred for business reasons in an annual amount equal to $15,000 plus a one-time membership fee of $10,000 for a business club. First class air travel for...

  • Page 204
    ... that he will not seek employment with GNC at any time in the future. 2. Resignation. Effective as of the Termination Date, the Executive hereby resigns as an officer and director of Holdings, Centers and any of their Affiliates (as defined in the Employment Agreement, effective as of March 16, 2007...

  • Page 205
    ... Pay Law, as amended, or any other Federal, state, or local law and any workers' compensation or disability claims under any such laws. This Release is for any and all claims arising from or relating to the Executive's employment relationship with Centers and his service relationship as an officer...

  • Page 206
    ... own free will and agrees to abide by all the terms and conditions contained herein. 10. Effective Time of Release. The Executive may accept this Release by signing it and returning it to [NAME], General Nutrition Centers, Inc., 300 Sixth Avenue, Pittsburgh, PA 15222, within twenty-one (21) days of...

  • Page 207
    ... as of this 3rd day of March, 2009 to the Employment Agreement dated as of October 31, 2008 (the "Employment Agreement"), by and between General Nutrition Centers, Inc., a Delaware corporation (the "Company"), which is an indirect wholly owned subsidiary of GNC Acquisition Holdings, Inc., a Delaware...

  • Page 208
    ... the Accounting Firm (as defined herein) with respect to the intended effect of such Payment Reduction." 5. Section 4.3(f)(iii) of the Employment Agreement is hereby amended in its entirety as follows: "the Company effects a material reduction in the Executive's Base Salary, unless all executives at...

  • Page 209
    ...Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect; and (iii) such payments shall be made on or before the last day of the Executive's taxable year following the taxable year in which the expense was incurred." [REMAINDER...

  • Page 210
    ...WHEREOF, the undersigned has caused this Amendment to be executed this 3rd day of March 2009. EXECUTIVE /s/ Michael M. Nuzzo Name: GENERAL NUTRITION CENTERS, INC. By: /s/ Gerald J. Stubenhofer, Jr. Name: Gerald J. Stubenhofer, Jr. Title: Senior Vice President, Chief Legal Officer 4 Michael M. Nuzzo

  • Page 211
    ...") made as of this 3rd day of March, 2009 to the Employment Agreement dated as of December 19, 2007 (the "Employment Agreement"), by and among GNC Acquisition Holdings, Inc., a Delaware corporation ("Holdings"), General Nutrition Centers, Inc., a Delaware corporation and wholly owned subsidiary of...

  • Page 212
    ... annualized value of the Perquisites as determined in good faith by the Accounting Firm (as defined in Section 4.3(f)(ii)) using customary valuation methods, payable on the 30th day following the date of termination." 4. The parenthetical at the end of Section 4.2(b)(iii) of the Employment Agreement...

  • Page 213
    ... of any such provision of this Agreement, references to a "termination," "termination of employment" or like terms shall mean "separation from service." (c) With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Code...

  • Page 214
    ... as a separate payment. (f) If the Executive is deemed on the date of termination of employment to be a "specified employee", within the meaning of that term under Section 409A(a)(2)(B) of the Code and using the identification methodology selected by GNC from time to time, or if none, the default...

  • Page 215
    [SIGNATURE PAGE FOLLOWS] 5

  • Page 216
    ... WHEREOF, the undersigned has caused this Amendment to be executed this 3rd day of March 2009. EXECUTIVE /s/ Beth J. Kaplan Name: Beth J. Kaplan GENERAL NUTRITION CENTERS, INC. By: /s/ Gerald J. Stubenhofer, Jr. Name: Gerald J. Stubenhofer, Jr. Title: Senior Vice President, Chief Legal Officer 6

  • Page 217
    ... as of this 3rd day of March, 2009 to the Employment Agreement dated as of April 21, 2008 (the "Employment Agreement"), by and between General Nutrition Centers, Inc., a Delaware corporation (the "Company"), which is an indirect wholly owned subsidiary of GNC Acquisition Holdings, Inc., a Delaware...

  • Page 218
    ... "The Base Salary and benefits accrued through the end of termination shall be paid in accordance with the Company's general payroll practices and procedures and the terms and conditions of any applicable plan." 9. The last sentence of Section 4.6 of the Employment Agreement is hereby amended...

  • Page 219
    ...Executive following the expiration of such period." 10. The Employment Agreement is hereby amended to insert a new Section 6.16 as follows: "6.16. Section 409A of the Code. (a) Although the Company does not guarantee to the Executive any particular tax treatment relating to the payments and benefits...

  • Page 220
    ...Section 409A of the Code and regulations and guidance issued by the Internal Revenue Service under Section 409A of the Code, including IRS Notice 2005-1 in any instance in which amounts are paid under this Agreement and such amounts are treated as deferred compensation under Section 409A of the Code...

  • Page 221
    ... WITNESS WHEREOF, the undersigned has caused this Amendment to be executed this 3rd day of March 2009. EXECUTIVE /s/ Thomas Dowd Name: Thomas Dowd GENERAL NUTRITION CENTERS, INC. By: /s/ Gerald J. Stubenhofer, Jr. Name: Gerald J. Stubenhofer, Jr. Title: Senior Vice President, Chief Legal Officer 5

  • Page 222
    ...made as of this 3rd day of March, 2009 to the Employment Agreement dated as of May 27, 2008 (the "Employment Agreement"), by and between General Nutrition Centers, Inc., a Delaware corporation (the "Company"), which is an indirect wholly owned subsidiary of GNC Acquisition Holdings, Inc., a Delaware...

  • Page 223
    ... "The Base Salary and benefits accrued through the end of termination shall be paid in accordance with the Company's general payroll practices and procedures and the terms and conditions of any applicable plan." 9. The last sentence of Section 4.6 of the Employment Agreement is hereby amended...

  • Page 224
    ...Executive following the expiration of such period." 10. The Employment Agreement is hereby amended to insert a new Section 6.16 as follows: "6.16. Section 409A of the Code. (a) Although the Company does not guarantee to the Executive any particular tax treatment relating to the payments and benefits...

  • Page 225
    ...Section 409A of the Code and regulations and guidance issued by the Internal Revenue Service under Section 409A of the Code, including IRS Notice 2005-1 in any instance in which amounts are paid under this Agreement and such amounts are treated as deferred compensation under Section 409A of the Code...

  • Page 226
    ... WHEREOF, the undersigned has caused this Amendment to be executed this 12th day of March 2009. EXECUTIVE /s/ Michael Locke Name: Michael Locke GENERAL NUTRITION CENTERS, INC. By: /s/ Gerald J. Stubenhofer, Jr. Name: Gerald J. Stubenhofer, Jr. Title: Senior Vice President, Chief Legal Officer 5

  • Page 227
    ...for fixed charges (income before income taxes and fixed charges) by fixed charges (interest cost, amortization of debt expense, and the portion of rental expenses deemed to be representative of the interest factor in those rentals.) Computation of General Nutrition Centers, Inc. Ratio of Earnings to...

  • Page 228
    ... of the Company Name of Entity Jurisdiction of Incorporation General Nutrition Corporation General Nutrition Investment Company GNC Puerto Rico, Inc. General Nutrition Government Services, Inc. General Nutrition Centres Company Pennsylvania Arizona Puerto Rico Delaware Canada (Nova Scotia...

  • Page 229
    ...and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date March 18, 2009 /s/ Joseph M. Fortunato Joseph M. Fortunato Chief Executive Officer...

  • Page 230
    Exhibit 31.2 Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a) I, Michael M. Nuzzo, certify that: 1. I have reviewed this Annual Report on Form 10-K of General Nutrition Centers, Inc.; 2. Based on my knowledge, this report does not contain any ...

  • Page 231
    ... Annual Report on Form 10-K of General Nutrition Centers, Inc. (the "Company"), for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Joseph M. Fortunato, as Chief Executive Officer of the Company and Michael M. Nuzzo, as Chief...