GNC 2009 Annual Report Download - page 104

Table of Contents
GENERAL NUTRITION CENTERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 an additional insured under
most of such parties' insurance policies. The Company also is 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.
Pro-Hormone/Androstenedione Cases. The Company is currently defending six 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"). Five of these lawsuits were filed in California, New York, New Jersey, Pennsylvania, and
Florida. The most recent case was filed in Illinois (see Stephens and Pio matter discussed below).
In each of the six cases, plaintiffs sought, or are seeking, to certify a class and obtain damages on behalf of the class representatives and all
those similarly-situated who purchased from the Company certain nutritional supplements alleged to contain one or more Andro Products.
On April 17 and 18, 2006, the Company filed pleadings seeking to remove the then-pending Andro Actions to the respective federal district
courts for the districts in which the respective Andro Actions were pending. At the same time, the Company filed motions seeking to transfer the
then-pending Andro Actions to the U.S. District Court, Southern District of New York based on "related to" bankruptcy jurisdiction, as one of the
manufacturers supplying it with Andro Products, and from whom it sought indemnity, MuscleTech Research and Development, Inc.
("MuscleTech"), had filed for 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 U.S. District Court, Southern District of New York based on bankruptcy
jurisdiction. The California case, Guzman v. General Nutrition Companies, Inc., was not removed and remains pending in the Superior Court of
the State of California for the County of Los Angeles.
Following the conclusion of the MuscleTech bankruptcy case, in September 2007, plaintiffs filed a stipulation dismissing all claims related to
the sale of MuscleTech products in the four cases then-pending in the Southern District of New York (New Jersey, New York, Pennsylvania,
and Florida). Additionally, plaintiffs filed motions with the Court to remand those actions to their respective state courts, asserting that the
federal court had been divested of jurisdiction because the MuscleTech bankruptcy action was no longer pending. That motion was never ruled
upon and has been rendered moot by the disposition of the case, discussed below.
On June 4, 2008, the U.S. District Court, Southern District of New York (on its own motion) set a hearing for July 14, 2008 for the purpose of
hearing argument as to why the New Jersey, New York, Pennsylvania, and Florida cases should not be dismissed for failure to prosecute in
conformity to the Court's Case Management Order. Following the hearing, the Court advised that all four cases would be dismissed with
prejudice and issued an Order to that effect on July 29, 2008. On August 25, 2008 plaintiffs appealed the dismissal of the four cases to U.S.
Court of Appeals for the Second Circuit.
In the Guzman case in California, plaintiffs' Motion for Class Certification was denied on September 8, 2008. Plaintiffs appealed on
October 31, 2008.
On October 3, 2008, the plaintiffs in the five other Andro Actions filed another suit related to the sale of Andro products in state court in
Illinois. Stephens and Pio v. General Nutrition Companies, Inc. (Case No. 08 CH 37097, Circuit Court of Cook County, Illinois, County
Department, Chancery Division). The allegations are substantially similar to all of the other Andro Actions, as well as another case, Pio and
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