GNC 2011 Annual Report Download - page 53

Table of Contents
and innovative products. We believe that these ventures represent attractive growth opportunities. For the year ended December 31, 2010, we incurred
$3.2 million of start up expenses related to agreements with PepsiCo, in connection with the development of a new brand of fortified coconut water called
Phenom, and with PetSmart, in connection with the development, manufacture and distribution of nutritional supplements for pets.
In addition to the above, we incurred $3.5 million of non-recurring expenses, principally related to the exploration of strategic alternatives.
Related Parties
Management Services Agreement. Upon consummation of the Merger, we entered into a management services agreement with our Parent. Under the
agreement, our Parent provides us and its subsidiaries with certain services in exchange for an annual fee of $1.5 million, as well as customary fees for
services rendered in connection with certain major financial transactions, plus reimbursement of expenses and a tax gross-up relating to a non-tax deductible
portion of the fee. For each of the years ended December 31, 2010 and 2009, $1.5 million was paid pursuant to this agreement.
Credit Facility. Upon consummation of the Merger, we entered into the Senior Credit Facility, under which various funds related to one of our
sponsors, Ares, are lenders. Under the Senior Credit Facility, these affiliated funds have made term loans to us in the amount of $65.0 million and
$62.1 million, as of the consummation of the Merger and December 31, 2010, respectively. In addition, as of December 31, 2010, an aggregate of $2.9 million
in principal and $11.0 million in interest has been paid to affiliates of Ares in respect of amounts borrowed under the Senior Credit Facility. Borrowings under
the Senior Credit Facility have accrued interest at a weighted average rate of 4.6% per year.
Proposed Refinancing. On February 7, 2011, we announced that we intend to enter into, subject to market and other conditions, the Refinancing. We
currently expect to use the proceeds from the Refinancing, if consummated, to, among other things, refinance our existing indebtedness, including the term
loans held by Ares. We currently expect to consummate the Refinancing in March 2011; however, there can be no assurance that we will complete the
Refinancing either on terms acceptable to us or at all. See "Liquidity and Capital Resources — Cash Used in Financing Activities — Proposed Refinancing."
Lease Agreements. At December 31, 2010, General Nutrition Centres Company, a wholly owned subsidiary of us, was party to 19 lease agreements,
as lessee, with Cadillac Fairview Corporation, a direct wholly owned subsidiary of OTPP, as lessor, with respect to properties located in Canada. For the years
ended December 31, 2010, 2009 and 2008, we paid $2.8 million, $2.4 million and $2.5 million, respectively, under the lease agreements and as of
December 31, 2010, the aggregate future minimum lease payments under the lease agreements was $19.3 million. Each lease was negotiated in the ordinary
course of business on an arm's length basis.
Product Purchases. During our 2010 and 2009 fiscal years, we purchased certain fish oil and probiotics products manufactured by Lifelong
Nutrition, Inc. ("Lifelong") for resale under our proprietary brand name GNC WELLbeING®. Carmen Fortino, who serves as one of our directors, was the
Managing Director, a member of the board of directors and a stockholder of Lifelong's parent company. The aggregate value of the products we purchased
from Lifelong was $2.3 and $3.3 million for the 2010 and 2009 fiscal years, respectively. Effective December 31, 2010, Lifelong's parent company was sold
to a third party and Mr. Fortino resigned his positions at Lifelong.
Product Development and Distribution Agreement. On June 3, 2010, General Nutrition Corporation, a wholly owned subsidiary of us, and Lifelong
entered into a Product Development
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