GNC 2009 Annual Report Download - page 29

Table of Contents
Franchise regulations could limit our ability to terminate or replace under-performing franchises, which could adversely impact
franchise revenues.
Our franchise activities are subject to federal, 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 the governance of our franchise relationship impose fair dealing standards during the
term of the franchise relationship and limitations on our ability to terminate or refuse to renew a franchise. We may, therefore, be required to
retain an under-performing franchise and may be unable to replace the franchisee, which could adversely impact franchise revenues. In
addition, we cannot predict the nature and effect of any future legislation or regulation on our franchise operations.
We are not insured for a significant portion of our claims exposure, which could materially and adversely affect our operating income
and profitability.
We have procured insurance independently for the following areas: (1) general liability; (2) product liability; (3) directors and officers liability;
(4) property insurance; (5) workers' compensation insurance; and (6) various other areas. We are self-insured for other areas, including:
(1) medical benefits; (2) workers' compensation coverage in New York, with a stop loss of $250,000; (3) physical damage to our tractors,
trailers, and fleet vehicles for field personnel use; and (4) physical damages that may occur at company-owned stores. We are not insured for
some property and casualty risks due to the frequency and severity of a loss, the cost of insurance, and the overall risk analysis. In addition, we
carry product liability insurance coverage that requires us to pay deductibles/retentions with primary and excess liability coverage above the
deductible/retention amount. Because of our deductibles and self-insured retention amounts, we have significant exposure to fluctuations in the
number and severity of claims. We currently maintain product liability insurance with a retention of $3.0 million per claim with an aggregate cap
on retained loss of $10.0 million. As a result, our insurance and claims expense could increase in the future. Alternatively, we could raise our
deductibles/retentions, which would increase our already significant exposure to expense from claims. If any claim exceeds our coverage, we
would bear the excess expense, in addition to our other self-insured amounts. If the frequency or severity of claims or our expenses increase,
our operating income and profitability could be materially adversely affected. See Item 3, "Legal proceedings."
The controlling stockholders of our Parent may take actions that conflict with the interests of other stockholders and investors. This
control may have the effect of delaying or preventing changes of control or changes in management.
An affiliate of Ares and OTPP, and certain of our directors and members of our management indirectly beneficially own substantially all of
the outstanding equity of our Parent and, as a result, have the indirect power to elect our directors, to appoint members of management, and to
approve all actions requiring the approval of the holders of our common stock, including adopting amendments to our certificate of incorporation
and approving mergers, acquisitions, or sales of all or substantially all of our assets. The interests of our ultimate controlling stockholders might
conflict with the interests of other stockholders or the holders of our debt. Our ultimate controlling stockholders also may have an interest in
pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investment, even though
such transactions might involve risks to the holders of our debt. 24