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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NUMBER: 0-19592
GENERAL NUTRITION COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 04-3056351
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 SIXTH AVENUE PITTSBURGH, PENNSYLVANIA 15222
(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code: (412) 288-4600
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK-PAR VALUE $.01
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13, or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2), has been subject to such filing
requirements for the past 90 days.
[ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ] Yes [ ] No
As of April 28, 1997, 80,252,080 shares of the Registrant's Common Stock
were outstanding. The aggregate market value of the voting stock held by
non-affiliates as of that date was $58,975,980 based on the last reported sale
price of the Common Stock on the NASDAQ Stock Market.
DOCUMENTS INCORPORATED BY REFERENCE:
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INCORPORATED BY
DOCUMENT REFERENCE IN PART NO.
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Portions of General Nutrition Companies, Inc. Proxy Statement for its 1997
Annual Meeting of Stockholders........................................... III
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business........................................................................ 1
Item 2. Properties...................................................................... 11
Item 3. Legal Proceedings............................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders............................. 12
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters....... 12
Item 6. Selected Consolidated Financial Information and Other Data...................... 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................... 14
Item 8. Financial Statements and Supplementary Data..................................... 19
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure........................................................................... 40
PART III
Item 10. Directors and Executive Officers of the Registrant............................. 41
Item 11. Executive Compensation......................................................... 43
Item 12. Security Ownership of Certain Beneficial Owners and Management................. 43
Item 13. Certain Relationships and Related Transactions................................. 43
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................ 44
Signatures................................................................................ 47
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PART I
ITEM 1. BUSINESS
General Nutrition Companies, Inc. (the "Company"), collectively with its
subsidiaries, is the only nationwide specialty retailer of vitamin and mineral
supplements, sports nutrition products and herbs, and is also a leading provider
of personal care, and other health-related products. Domestically, the Company's
products are sold through 2,809 General Nutrition Centers and GNC Live Well
stores ("GNC"), of which 1,760 are owned and operated by the Company and 1,049
are franchised. Additionally, the Company generates retail revenue from 73
stores operating under various names including Natures Food Centres(R),
Amphora(TM) and Nature's Fresh(TM). Internationally, the Company operates 20
Health and Diet Centres and 9 General Nutrition Centres in the United Kingdom,
10 General Nutrition Centres in Canada and holds a controlling interest in 1
store in New Zealand. There are also 125 operating franchise stores in 15
different countries. The Company's marketing emphasizes high-margin, value-added
vitamin and mineral supplements, sports nutrition products and herbs sold under
the Company's GNC proprietary brands and other nationally recognized third-party
brand names.
The Company's strategy is to increase its market share in the vitamin,
mineral and supplement market and to leverage this increase to maximize
profitability. The Company strives to achieve these goals through: (i) unit
growth, with the addition of company-owned and franchised stores both
domestically and internationally; (ii) enhanced performance at existing stores,
with comparable store sales gains driven by advertising, new product
introductions and updated store formats; and (iii) improved profitability
through increased introduction of GNC proprietary branded product mix changes,
and increased economies of scale.
The success of the Company's strategy can be seen in its financial
information with revenue and operating earnings showing compound growth rates of
21.5% and 32.0%, respectively, since 1992. Set forth below is the Company's net
revenue, operating earnings, earnings per fully diluted common share and store
information for years 1992 through 1996.
COMPANY GROWTH
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1992 1993 1994 1995 1996
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(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
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NET REVENUE........................... $453,527 $546,253 $672,945 $845,952 $990,845
Operating earnings.................... 43,392 75,766 97,750 137,116 60,347
Earnings per share.................... (0.01) 0.38 0.57 0.81 0.05
OPERATING EARNINGS AS ADJUSTED*....... 50,169 75,826 98,425 138,699 152,413
EARNINGS PER SHARE AS ADJUSTED*....... 0.01 0.36 0.54 0.79 0.95
NUMBER OF STORES...................... 1,216 1,553 2,115 2,543 3,047
COMPARABLE STORE SALES GROWTH
(GNC STORES)........................ 12.6% 12.5% 5.8% 10.3% 0.3%
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* Operating earnings and earnings per share has been adjusted for comparative
purposes for non-cash compensation expenses, extraordinary items,
restructuring, and non-recurring charges in all years presented.
Unit Growth. Since 1992, the Company has opened or acquired in the United
States 1,684 new GNC stores, net of closings, of which 786 are company-owned and
898 are franchised locations. The Company's initial growth was through
company-owned stores located primarily in regional malls. Beginning in late 1992
the Company broadened its location selections to include strip shopping centers
and secondary malls as well as regional malls. The Company's franchise program
has also enabled the Company's expansion into secondary locations as well as
into international markets. In 1996, the Company opened 480 new domestic GNC
stores, of which 229 are company-owned and 250 are franchised. In 1996, the
Company opened 10 General Nutrition Centres in Canada, 9 in the United Kingdom
and has a controlling interest in 1 store in New Zealand. Additionally, 22
franchise stores opened in various international markets. Additional store
growth is expected in 1997 as the Company continues its store expansion program
for company-owned and franchised locations. In Franchising, at February 1, 1997,
there were 218 domestic and 1 international franchises awarded that had
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not yet opened and development agreements to open 41 and 373 franchise stores in
domestic and international markets, respectively.
In addition to its aggressive store opening program, the Company increased
its market share through acquisitions of existing locations. In 1996, the
Company acquired Nature's Fresh Northwest, Inc., a 6 store gourmet natural food
grocery store chain located in the Portland, Oregon area and a controlling
interest in Amphora, an aromatherapy retail store located in Seattle,
Washington.
Comparable Store Sales Gains. The Company believes that it has achieved
gains in comparable store sales in both company-owned and franchised GNC
locations through the continued introduction, or reformulation, of value added
specialty branded products as well as through refinements of its store format.
In 1996, the Company introduced more than 231 new or reformulated proprietary
branded products and plans to introduce more than 250 additional products in
1997. The Company continues to focus on creating updated store formats that
provide consumers with informational displays and signage in an attractive
shopping environment. Historically, when stores are converted to the updated
format, comparable store sales gains in the first year after conversion are
significantly better than in those stores not converted. Beginning in 1993, all
new stores were constructed utilizing the Company's current updated store
format. The Company updates stores built prior to 1993 as leases are renewed.
Set forth below for the periods presented, are comparable store sales gains
for company-owned and franchise stores in the United States and gains for
company-owned GNC stores in the first year after conversion to the updated store
format.
COMPARABLE STORE SALES GAINS
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STORES 1993 1994 1995 1996
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Company-owned (total)............................... 12.5% 5.8% 10.3% 0.3%
Franchise........................................... 20.3% 19.0% 15.5% 8.5%
Conversions to updated format....................... 20.3% 12.3% 16.1% 4.0%
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Enhanced Profitability. The Company continues to focus on improving its
profitability by shifting its mix to proprietary branded products which
typically yield higher profit margins. In addition, as the Company continues to
grow, it expects to further leverage its investments in manufacturing,
distribution, purchasing and marketing and benefit from its vertical
integration.
The Company operates in three distinct business segments; Retail,
Franchising and Manufacturing. For financial information concerning segments,
see Note 15 of Notes to Consolidated Financial Statements.
RETAIL
PRODUCTS
The Company's products are sold under its various proprietary brand names,
including Ultra Mega(R), Solotron(R), GNC(R), Natural Brand(TM), Pro
Performance, Challenge(TM), Herbal Plus(R), Nature's Fingerprint(TM), Preventive
Nutrition(R), 24-Hour Diet(R), Quick Shot(TM), Optibolic(TM), Bio-Remedy(R),
Harvest of Nature(TM), Vita Worth(R), Natural Solutions(R), Food for
Thought(TM), and Opti-Body(R). In addition, the Company carries various
third-party brand name products including Weider(TM), Cybergenics(R), Health
Valley(R), Twin Lab(R), Nature's Herbs(R), Nature's Way(R), Natural Max(TM) and
Met-Rx(R). The Company's product mix focuses on high-margin, GNC proprietary
branded, value-added products emphasizing vitamin and mineral supplements,
sports nutrition and herbal products.
Vitamin and Mineral Supplements. For over 60 years, vitamin and mineral
supplements have represented the core of the Company's product line. Vitamins
and minerals are sold in single vitamin and multi-vitamin form, and in different
potency levels. Products are produced in tablets, soft gelatin and hard-shell
capsules, and powder forms. The Company has reformulated many of its existing
private label products and added new "consumer focused" special nutritional
formulas to its line of GNC proprietary branded products. These new GNC
proprietary branded products are designed to meet the customers' lifestyle
requirements, have unique formulations and packaging designed for target
markets, and therefore do not require competitive pricing. The
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Company places continued emphasis on these high-margin, value-added special
nutritional formulas for its vitamin and mineral products sold under its GNC
proprietary brand names.
Sports Nutrition Products. Sports nutrition products are food supplements
designed to be taken in conjunction with a fitness program. Management believes
that these products, which include various protein and weight gain powders as
well as high potency vitamin formulations, appeal to consumers who are engaged
in regular exercise, including athletes who are in training to gain weight and
develop their physique. Over 200 different sports nutrition products, including
the Company's GNC proprietary brands and national brands, are stocked by the
average GNC store.
Herbs. The herb category has been the fastest growing category of the
supplement market over the past four years. Herbal supplements are sold in
various hard-shell capsule, soft gel capsule, tea and liquid forms. These
products are sold in both single herb and combination formulas. The Company
merchandises herbs under its GNC proprietary brands Herbal Plus(R), Nature's
Fingerprint(TM), Harvest of Nature(TM) and Natural Brand(TM) along with products
provided by third-parties, including Nature's Way(R), Nature's Herbs(R),
Kyolic(R) and Ginsana(R).
Diet Products. The diet category consists of vitamin, mineral and herbal
formulas designed to supplement the diet of weight conscious consumers. These
products are sold in various pills, teas and meal replacement drinks. The
Company provides a GNC proprietary brand line of diet supplements, 24-Hour
Diet(R), along with third-party products.
Food Products. The Company sells a selection of specialty food products in
its GNC stores. As commodity natural food products have become available through
more distribution channels, the Company has reduced its line of food products,
focusing more on proprietary branded sports drinks, sports bars, and health
related snack items that carry a higher gross margin. This category is being
de-emphasized as part of the Company's ongoing reallocation of shelf space to
higher-margin, specialty non-food products. Through the acquisition of Nature's
Fresh Northwest, Inc. the Company has entered into the gourmet natural food
grocery business. These stores offer a broad assortment of natural produce as
well as meat, poultry, and seafood.
Personal Care and Miscellaneous Health Care Products. The Company sells
personal care products including hair care products, soaps, skin creams,
lotions, bath and massage products. These products are generally termed
"natural" because they contain few synthetic chemicals and additives. The
Company seeks to offer products within this category which include vitamins,
herbs and other natural ingredients and avoids products which contain harsh
chemicals.
Fitness and Apparel. Certain of the Company's store offer a variety of
sports accessories, including light-line fitness equipment, weight training
accessories and specialty workout apparel. In 1996 the Company discontinued
selling these products in most of the company-owned stores and will merchandise
selected third-party products in a limited number of stores in the future.
Gold Card/Other. This category primarily represents sales of the Company's
Gold Card. The card, for a $15 annual fee, provides customers with a 20%
discount on all products purchased, both on the date the card is purchased and
the first Tuesday of each month. At February 1, 1997, there were approximately
2.4 million active Gold Card members, with more than 7,000 new card holders
being added each week.
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Set forth below is a comparison for the last three years, of company-owned
GNC retail sales in each of its major product categories and their respective
percentage of total GNC retail sales:
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MAJOR PRODUCT CATEGORIES
1994 1995 1996
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% OF TOTAL % OF TOTAL % OF TOTAL
SALES SALES SALES SALES SALES SALES
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(SALES IN MILLIONS)
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Vitamins & Minerals.......................... $ 149 30% $ 197 32% $ 233 35%
Sports Nutrition............................. 145 29 164 27 182 27
Herbs........................................ 86 18 117 19 129 20
Diet Products................................ 35 7 46 8 39 6
Food Products................................ 20 4 21 4 18 3
Personal Care................................ 26 5 28 4 26 4
Fitness and Apparel.......................... 14 3 11 2 8 1
Gold Card/Other.............................. 19 4 25 4 27 4
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$ 494 100% $ 609 100% $ 662 100%
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Sales of the Company's GNC proprietary brands represented approximately
51%, 52% and 54% of the total retail sales in 1994, 1995 and 1996, respectively.
STORES
At February 1, 1997 the Company operated a network of 1,873 retail stores,
of which 1,833 were located in the United States and Puerto Rico, 39 stores in
the United Kingdom and Canada, and 1 in New Zealand. The following table sets
forth the number of retail stores and the respective operating names at the end
of the fiscal years 1994, 1995 and 1996.
NUMBER OF COMPANY-OWNED STORES OPERATING
AT YEAR END
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OPERATING NAME 1994 1995 1996
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Domestic
General Nutrition Centers..................................... 1,181 1,462 1,760
Nature's Food Centres......................................... 184 100 65
Nature's Fresh................................................ -- -- 6
Amphora....................................................... -- -- 2
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Subtotal domestic stores................................... 1,365 1,562 1,833
International
General Nutrition Centres..................................... -- -- 20
Health & Diet Centres......................................... -- 22 20
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Subtotal international stores.............................. -- 22 40
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Total Company operated stores.............................. 1,365 1,584 1,873
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GENERAL NUTRITION CENTERS. Most GNC stores contain between 1,200 and 1,800
square feet. Historically these GNC stores were constructed primarily in
regional shopping malls ("Traditional"). Beginning in late 1992, the Company, as
part of its store expansion strategy, focused its growth on strip centers and
secondary mall locations ("Expansion") rather than the Traditional mall sites.
While similar in sizes and profit margins, the strip center stores generate less
customer transactions and therefore have lower annual sales volume and sales per
square foot. The following table sets forth for the periods indicated, the
weighted average sales per store and sales per square foot for Traditional and
Expansion GNC stores.
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WEIGHTED AVERAGE SALES PER STORE AND SALES PER SQUARE FOOT
(SALES IN THOUSANDS)
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1993 1994
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SALES PER NUMBER SALES PER NUMBER
STORES SALES SQUARE FOOT OF STORES SALES SQUARE FOOT OF STORES
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Traditional................... $458.7 279 887 $485.9 296 861
Expansion..................... $203.9 134 142 $252.2 169 449
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1995 1996
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SALES PER NUMBER SALES PER NUMBER
STORES SALES SQUARE FOOT OF STORES SALES SQUARE FOOT OF STORES
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Traditional................... $536.3 327 851 $530.4 324 836
Expansion..................... $316.0 210 618 $300.0 199 878
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Updated Store Formats. The Company's current store format has been utilized
since 1990 and emphasizes the products and information concerning the products
as a merchandising tool. The Company began the implementation of this format by
converting existing GNC stores and is in the process of converting additional
stores as their leases renew. Sales generated by updated stores have shown
significant increases when compared to sales prior to conversion.
For the past three years, the Company has been developing a new concept
store with the goal of providing a unique shopping experience for GNC customers.
In 1996, the Company opened its second prototype store called "GNC Live Well".
The GNC Live Well store offers a full line of supplements, sports nutrition,
herbs, and expanded product lines, including aromatherapy, bath and spa, and a
broad selection of self-care related products. These self-care products include
both customized personal vita plans and health and body products. This new
format is designed to be a total health and self-care experience and not just a
supplement store. In 1997, the Company expects to open three new stores and
convert 22 existing high volume stores in prime real estate to the GNC Live Well
format. The Company continues to evaluate and modify its store formats to
maximize productivity and profitability.
Store Management. The Company's GNC stores are currently regionalized into
three divisions and, beginning in the second quarter of 1997, will be realigned
into four divisions. Each division is led by a Vice President who, along with
managers responsible for merchandising, promotions, and inventory, a Financial
Analyst and a network of Regional Sales Directors, manages company-owned store
operations. This decentralized organization has been in existence for over eight
years, allowing the Company's field management to customize stores to the
demographics of particular markets, and to have responsibility for merchandise
assortment, promotions, certain advertising and product pricing. In 1990, with
the new emphasis on franchising, a franchise management and field support group
was added to the divisional organization. This group is responsible for all
aspects of the franchise field operations.
NATURE FOOD CENTRES. At February 1, 1997 there were 65 Nature Food Centres
operating. In 1994, the Company acquired 207 Natures Food Centres and has since
converted 81 to GNC stores and closed 61 stores. The remaining 65 stores will
close at the date the Company negotiates termination of the remaining leases.
NATURE'S FRESH. In 1996, the Company acquired Nature's Fresh Northwest,
Inc., a 6 store gourmet grocery store chain located in the Portland, Oregon
area. These stores offer a broad assortment of natural produce, meat, poultry,
and seafood as well as vitamins and health and beauty aids. The stores range in
square footage from 4,500 to 31,000 square feet.
AMPHORA. In 1996, the Company acquired Amphora, a 1 store retail concept
offering aromatherapy based bath, body, and relaxation products. The Company has
plans to develop an Amphora line of products to be distributed through GNC
stores as well as to continue the testing of the Amphora retail store concept.
GENERAL NUTRITION CENTRES. The Company in 1996, opened 10 GNC stores in
Canada and 9 stores in the United Kingdom to test the GNC retail concept in
these international markets. The Company also has a controlling interest in 1
GNC store located in New Zealand.
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HEALTH AND DIET CENTRES. The Company purchased United Kingdom based Health
and Diet Centres in 1995. The stores offer products similar to that of a GNC
store with a greater mix of health food products and less proprietary branded
products. The Company introduced certain of the Company's proprietary branded
products in Health and Diet Centres in 1996.
MARKETING
Trends. The Company's current marketing and store expansion efforts have
resulted in approximately 13.0% share of the total retail supplement market,
including the vitamins, minerals, herbs, and sports nutrition categories,
compared with 10.7% in 1993.
According to various sources including Packaged Facts and Beyond Data, the
retail supplement market in which the Company competes, is forecasted to grow at
an accelerating rate through the rest of this decade (11.8%, 12.7%, 13.6%, and
14.5% in 1997, 1998, 1999, and 2000, respectively), reaching $10.7 billion by
2000. This growth is driven by a combination of an aging population and
increased consumer acceptance of supplements. For example, people over age 35,
which account for 73% of vitamin users, will grow from 127 million in 1995 to
150 million people in the U.S. alone by the year 2005. Meanwhile, between 1993
and 1996, usage of vitamins grew from 36% of the population to 40%; usage of
herbs grew from 14% of the population to 19%, and usage of sports nutrition
products grew from 4.3% of the population to 6.4%. The overall alternative
medicine category grew at an average 30% versus 8% for conventional medicine
from 1989 to 1993, the last year for which statistics are available.
The Company markets its proprietary brands of specialty nutrition products
through an integrated marketing program whose executional elements include
television, print and radio media, storefront graphics, Gold Card member
communications, and point of purchase materials. The Company further benefits
from product advertising paid for entirely by third-party vendors, promoting
their products and identifying GNC stores as the place to purchase these
products. In 1996, the Company spent $37.7 million net on retail advertising and
other marketing efforts, or approximately 5.2% of retail net revenue, compared
with $30.9 million, or approximately 4.7% of retail net revenue in 1995.
Additionally, the Company's franchisees currently are required to spend up
to 3% of sales on local advertising and may be required to contribute up to 3%
of their retail sales to a fund utilized for national advertising. In 1995, the
Company began setting up co-op advertising funds with participating franchisees
in major markets. These co-ops require franchisees to contribute 2.5% of sales
to the fund while the Company contributes the same percentage of sales for
company-owned stores in the market. This permits the Company to pool its own
funds with those of its franchisees to advertise in a more effective and
cohesive way. Total dollars spent in 1996 by the co-ops was $6.1 million, up
from $690,000 in 1995. There were 33 co-ops in place at February 1, 1997. An
additional 15 co-ops formations are anticipated in 1997.
Advertising. The Company completed a comprehensive in-market test of a new
advertising approach in 1996, which indicated that improved consumer credibility
and expanded mainstream consumer appeal could be achieved contemporaneously with
improved short term sales performance. Management believes this new marketing
approach positions GNC as the customer's inspirational partner in living their
best life. "Live Well" has been added to advertising, point of purchase
materials, new store signage and even the Company logo to reflect the new,
value-based positioning. To execute the new marketing approach, which management
believes will serve as the basis for future marketing efforts, the Company
contracted Deutsch, Inc., an independent New York advertising agency with strong
retail and strategic experience.
Training. The Company's marketing efforts include a comprehensive training
and educational effort for all store personnel, including a standard training
curriculum on basic nutrition, GNC brands, manufacturing, customer service, and
basic selling strategies. Additionally, a toll-free consumer information line
has been established to answer customer questions regarding GNC brand products.
Gold Card Program. The Company's Gold Card Program has developed into a
key component of the Company's marketing strategy, with membership as of
February 1, 1997 of approximately 2.4 million customers. The Company believes
that its Gold Card Program builds customer loyalty and makes GNC a
destination-oriented retailer for customers that hold a Gold Card. Average sales
per Gold Card customer increases to nearly $50 per transaction on "Super
Tuesday," the first Tuesday of every month and the day on
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which Gold Card holders receive a 20% discount on all purchases. The average
sale per customer on Super Tuesday is nearly three times the Company's daily
average. Gold Card holders also receive a complimentary issue of Let's Live
Magazine on a monthly basis which provides information that educates members to
make larger investments in their health.
The Company completed the design and installation of a state-of-the-art
database marketing system for the Gold Card program. The system allows matching
and analysis of consumer information; including who they are and what and when
they buy. During 1997, the database system will be used to increase card usage
and member participation rate on Super Tuesdays, to sell more product to the
most likely prospects based on proven buying patterns, and to reduce
communications costs to non-participating members.
Scientific Studies. Scientific studies are bringing new credibility to the
supplement category. Consumers now list scientific research as the single most
compelling factor in their category participation and purchase decisions, and
well publicized new research drives massive swings in consumer demand for
clinically proven nutritionals. The Company's scientific affairs group is
staffed with highly qualified personnel, including a Ph.D. The group combines
high quality science with GNC product development, research support, information
dissemination and regulatory affairs to enhance scientific credibility for the
Company and its product lines.
COMPETITION
In the vitamin, mineral, and supplement line, the Company has no national
specialty retail competitor. However, the Company competes on a regional basis
directly with other specialty health retailers and also competes directly with
many drug stores, supermarkets, and mass merchandisers. Prior to 1986, the
Company's principal basis of competition was price. However, as the Company has
emphasized higher-margin specialty products, the Company has enhanced its
competitive position by offering proprietary branded formulations, a broad
product assortment and service provided by its retail sales force. The Company
believes that none of its competitors offers the same level of product selection
and customer service as the Company or benefits to the same extent from national
advertising. In the sports nutrition line, the Company competes principally with
health clubs, gyms and mail order companies. The Company believes that, as a
specialty retailer, the quality and selection of its products, marketing dollars
spent, store appearance, informative sales force, convenience, and consumer
confidence in the GNC name provides a distinct competitive advantage.
FRANCHISING
Beginning in 1987, the Company developed a franchising strategy to enhance
the Company's operating performance through the conversion of certain marginally
performing stores and to increase its store base through the addition of new
stores. Franchise stores have demonstrated that GNC stores can operate
successfully in locations such as strip centers and secondary malls that were
previously considered secondary locations. The Company's selection criteria for
its franchisees is directed towards the owner/operator versus a passive
investor. The Company believes that the consistency and customer service an
owner/operator provides is important given the specialized nature of the
Company's product line. The success of the franchise program was recognized as
GNC was named the number one franchise opportunity in a survey published by
Success magazine in its 1994 rating of over 2,000 franchise operations. In 1995,
Franchise Buyer magazine ranked GNC the number one non-food retail franchise. In
1996, Franchise Times magazine ranked GNC the sixth Retail and Specialty
Franchise in the United States.
The Company offers franchisees a three-part training program consisting of
in-store, classroom and field training concentrating on product education and
franchise operations. This training program is augmented by the franchise
management group. Currently all franchise agreements are effective for a
ten-year period. At the end of the franchise agreement, the Company has the
option to permit renewal for another 10 year period for 1/2 of the franchise fee
that is then in effect. Although franchise contracts contain strict requirements
for store operations, the Company cannot exercise the same degree of control
over franchisees as it does over its store managers; however, the Company does
retain the right to approve vendors, specific products and requires franchisees
to obtain legal approval of any franchise advertising. The Company recognizes a
lower margin on the sale of its products to franchisees because of the wholesale
prices charged. However, such lower margins on product sales to franchisees are
partially offset by franchise royalties and incremental business at the
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Company's manufacturing facility as well as the absence of direct store
operating expenses incurred by the Company.
The following table sets forth, for the years presented, the number of
operating franchise locations and the number of franchise stores that were
awarded, but were not yet open at the end of each year:
NUMBER OF OPERATING FRANCHISE LOCATIONS
<TABLE>
<CAPTION>
1994 1995 1996
------------------------- ------------------------- -------------------------
FRANCHISE LOCATIONS DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL
- ------------------------------- -------- ------------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
At beginning of year........... 480 29 676 74 848 111
Added during year.............. 224 45 257 37 272 22
Closed or converted............ 28 -- 85 -- 71 8
--- --- --- --- ----- ---
At end of year................. 676 74 848 111 1,049 125
=== === === === ===== ===
Stores awarded but not yet
open......................... 185 8 267 4 218 1
Development agreements......... 11 131 6 161 41 373
</TABLE>
Domestic. The Company's current franchising program is directed primarily
toward existing franchisees and third-parties. New franchisees to the system are
currently required to pay an initial fee of $27,500 for a franchise license,
$22,500 if the applicant has an existing franchise agreement. The initial fee
has increased to $27,500 in 1996 and from $17,500 to $25,000 in years 1993
through 1995. The Company offers limited financing to qualified franchisees at
current fixed interest rates of 13.75% per annum ordinarily for a term up to
five years. Once established, franchisees are required to pay the Company a
continuing royalty of 6% of sales, to spend up to 3% of sales on local
advertising, and may be required to contribute up to 3% of sales toward a
national advertising fund. Reduced license fees of $10,000 and a lower initial
royalty fee of 4%, 5% and 6% for years 1, 2 and 3 with 6% for years thereafter,
respectively, is offered to independently owned health food/ nutrition store
owners to encourage them to convert to GNC franchises.
Franchises receive limited geographical exclusivity and are required to
carry all of the Company's own GNC proprietary brand name vitamins and mineral
supplements. GNC requires owners to operate the stores, and currently limits the
number of stores a franchisee can own to five. If a franchisee does not meet
specified performance and appearance criteria, the Company is permitted to
terminate the franchisee agreement. In these situations, the Company may take
possession of the location, inventory, and equipment, and continue to operate it
as a company-owned or franchise location.
International. A new participant in the Company's international franchise
program is required to pay an initial fee of $20,000 per store. Upon the store
opening, the franchise is required to pay a continuing royalty up to 5% of
sales. The Company's strategy for international franchising is to grant a
franchise for an entire country to an entity with extensive knowledge of that
country's business environment and adequate capital for market penetration.
International franchised stores generate sales per square foot comparable with
domestic store locations. However, the Company generates less revenue from these
franchises due to lower international royalty rates and a smaller percentage of
products purchased from the Company. In 1996, the Company opened 22
international franchised locations, bringing the total to 125 franchised stores
operating in 15 countries outside of the United States, including Mexico,
Philippines, Taiwan, Guatemala, Bahamas, Guam, Peru, Spain, Brazil, Singapore,
El Salvador, the Dominican Republic, Columbia, Indonesia and Saudi Arabia. The
Company has entered into development agreements for an additional 373
international franchise stores in 15 countries, including stores in countries
already mentioned as well as Chile, Israel, Costa Rica, South Korea, Thailand,
and Turkey.
MANUFACTURING
The Company's main manufacturing plant, located in Greenville, South
Carolina, is one of the largest vitamin and mineral supplement manufacturing
facilities in the United States. The plant, which is owned by the Company, is
solely dedicated to the manufacture of vitamin, mineral, herbal and sports
nutrition supplements. The Company manufactures the majority of its products in
three forms: tablet, soft gel capsule and hard shell capsules. The plant also
manufactures certain powder products. Revenue at the facility is
8
<PAGE> 11
generated through sales to other segments of the Company and sales to various
third-parties. Revenue generated through sales to other segments of the Company
represented approximately 68% of total manufacturing revenue in 1996 and
approximately 74% in 1995. The Company will continue to invest in the expansion
of the manufacturing facility to ensure sufficient capacity to meet the demands
of the Retail and Franchise business, through 1999. In early 1998, the Company,
to allow for increased manufacturing capacity requirements, is planning to move
its packaging lines and finished goods inventory to a new 100,000 square foot
facility to be constructed adjacent to the existing facility.
The Company places added emphasis on quality control, and conducts testing
on all raw materials and finished products, weight testing and purity testing in
the Company's state of the art micro bacterial lab. The Company's product
development and quality control team currently consists of 56 individuals, who
work closely with the retail sales group and scientific affairs group to respond
to new science and consumer demands to reformulate existing and develop new
products. In 1996 the plant developed a total of 92 new or reformulated products
with over 130 scheduled for 1997.
The principal raw materials used in the manufacturing process are natural
and synthetic vitamins and gelatin. The Company maintains multiple sources for
all raw materials. Currently, one vendor supplies approximately 28% of the
manufacturing facility's raw materials. No other single vendor accounts for more
than 8% of its raw material purchases. The Company believes multiple sources
exist to meet its raw material requirements.
In 1995, the Company acquired Health and Diet Food Company Limited, a
United Kingdom manufacturing facility specializing in the packaging of vitamin
supplements and manufacture of certain food and cosmetic products, sold
primarily to third-parties in the U.K. and Europe as well as to the Health and
Diet Centre stores. During 1996, the Company acquired the manufacturing
operation of DFC Thompson Australia Pty Limited ("DFC"), an Australian
manufacturer. On a short-term basis, the acquisition is designed to educate the
Company in conducting business in that geographical area. The Company's
long-term objective is to convert DFC into a manufacturing facility for GNC
products, supplying needed inventory to GNC stores that the Company intends to
open in Australia, New Zealand and the Pacific Rim.
WAREHOUSING AND DISTRIBUTION
The Company currently distributes its products through three leased
distribution centers with its own drivers and leased trucks as well as through
contract and common carriers. Substantially all the products sold at
company-owned stores, and approximately 85% of products sold by franchisees,
flow through one of the Company's distribution centers. It is the Company's
policy that all products be received in the Company's distribution centers to
assure that such products and their labels are reviewed for compliance with the
Company's Federal Trade Commission consent decrees prior to sale. Scheduled
deliveries are made directly to GNC stores on a one or two-week basis. The
Company's three distribution centers are located in Pittsburgh, Pennsylvania;
Atlanta, Georgia; and Phoenix, Arizona. The Company closed its distribution
center in Dallas, Texas as a result of the addition of the larger square foot
facility in Phoenix. In 1996 the Company increased its square footage of
warehousing by approximately 129,000 square feet or 41% to meet the continuing
demands of the retail store expansion program. In addition to adding new
automated conveyor systems, the Company is engaged in an ongoing process of
upgrading its distribution computer systems to increase mechanization and to
provide maximum productivity. This automation and computer system upgrades
resulted in a 47% increase in warehouse through-put in 1996.
GOVERNMENT REGULATIONS
The processing, formulation, packaging, labeling and advertising of the
Company's products are subject to regulation by one or more federal agencies,
including the Food and Drug Administration ("FDA"), Federal Trade Commission
("FTC"), the Consumer Product Safety Commission, the United States Department of
Agriculture and the Environmental Protection Agency. These activities are also
regulated by various agencies of the states and localities in which the
Company's products are sold. The FDA, in particular, regulates the formulation,
manufacture, and labeling of vitamin and mineral supplements.
9
<PAGE> 12
Partially in response to the enactment of the Nutrition Labeling and
Education Act of 1990, the FDA, in November, 1991, issued proposed regulations
designed to, among other things, establish specific regulations for the
nutrition labeling of vitamin and mineral supplements and establish procedures
for FDA approval of health claim messages. Final regulations were issued on
January 4, 1994 with respect to the procedures established for FDA approval of
health claim messages. The regulations prohibit the use of any health claim for
a dietary supplement unless the health claim is supported by significant
scientific agreement and is pre-approved by the FDA. To date, the FDA has
approved the use of health claims for dietary supplements only in connection
with calcium and osteoporosis, and folic acid and neural tube defects.
Principally through the efforts of the dietary supplement industry, on
October 25, 1994, the Dietary Supplement Health and Education Act of 1994 was
signed into law. The new law amends the Federal Food, Drug, and Cosmetic Act
and, in the judgment of the Company, is favorable to the dietary supplement
industry. First and foremost, the legislation creates a new statutory class of
"dietary supplements." This new class includes vitamins, minerals, herbs, amino
acids and other dietary substances for human use to supplement the diet and the
legislation grandfathers all dietary ingredients on the market as of October 15,
1994. A dietary supplement which contains a new dietary ingredient, one not on
the market as of October 15, 1994, will require evidence of a history of use or
other evidence of safety establishing that it will reasonably be expected to be
safe, such evidence to be provided by the manufacturer or distributor to the
appropriate authority before it may be marketed. The legislation also recognizes
a need for the dissemination of information linking nutrition and long-term good
health and provides that publications, which are not false and misleading and
present a balanced view of available scientific information on a dietary
supplement, may be used in connection with the sale of dietary supplements to
consumers. Among other changes, the new law prevents the further regulation of
dietary ingredients as "food additives" and allows the use of statements of
nutritional support on product labels and in product labeling. It also
establishes a Commission to study and provide recommendations for "the
regulation of label claims and statements for dietary supplements, including the
use of literature in connection with the sale of dietary supplements and
procedures for the evaluation of such claims. In making such recommendations,
the Commission shall evaluate how best to provide truthful, scientifically
valid, and non misleading information to consumers so that consumers may make
informed and appropriate health care choices for themselves and their families".
It also revokes a negative Advance Notice of Proposed Rule making that the FDA
had published in June of 1993. On December 28, 1995, the FDA published a notice
in the Federal Register setting forth proposed new nutrition labeling
regulations for dietary supplements. Comments were submitted by the industry in
June 1996, and it is anticipated that the FDA will publish final rules in 1997.
It is anticipated the industry will have one year from the publication of the
final rules to bring their products in compliance with the new rules.
In 1984, the FTC instituted an investigation of GNI, a subsidiary of the
Company, alleging deceptive acts and practices in connection with the
advertising and marketing of certain of GNI's products. GNI accepted a proposed
consent order which was finalized in 1989, under which GNI agreed to refrain
from, among other things, making certain claims with respect to certain of its
products unless the claims are based on and substantiated by reliable and
competent scientific evidence. The Company had also entered into a consent order
in 1970 with the FTC which generally addressed "iron deficiency anemia" type
products. As a result of routine monitoring by the FTC as to compliance with
these orders, disputes arose concerning GNI's compliance with these orders, and
with regard to advertising for certain hair care products. While GNI believes
that, at all times, it operated in material compliance with the orders, GNI
entered into a settlement in 1994 with the FTC to avoid protracted litigation.
As a part of this settlement, GNI entered into a consent decree and paid,
without admitting liability, a civil penalty in the amount of $2.4 million. GNI
agreed to adhere to the terms of the 1970 and 1989 consent orders and to abide
by the provisions of the settlement document concerning hair care products. The
Company does not believe that future compliance with the outstanding consent
decrees will materially affect its business operations. GNI intends to petition
the FTC for clarification of what it believes is ambiguous and outmoded language
contained in the 1970 order and also to modify the 1989 order, to minimize
future conflicts over the meaning of the orders.
The FTC continues to monitor the Company's advertising and, from time to
time, requests substantiation with respect to such advertising to assess
compliance with the various outstanding consent decrees and with the Federal
Trade Commission Act. The Company's policy is to use advertising that complies
with the consent
10
<PAGE> 13
decrees and applicable regulations. To better ensure compliance, in 1993 the
Company discontinued purchasing products at the store and division levels and
began to purchase centrally all third-party products for company-owned stores
and third-party products distributed by the Company to franchise stores. It is
also the Company's policy that all products be received in the Company's
distribution centers to assure that such products and their labels are reviewed
for compliance with the consent decrees prior to sale. The Company also reviews
the use of third-party point of purchase materials such as store signs and
promotional brochures. Nevertheless, there can be no assurance that inadvertent
failures to comply with the consent decrees and applicable regulations will not
occur. Approximately 85% of the products sold by franchise stores flow through
one of the Company's distribution centers. Although franchise contracts contain
strict requirements for store operations, including compliance with federal,
state, and local laws and regulations, the Company cannot exercise the same
degree of control over franchisees as it does over its company-owned stores. As
a result of the Company's efforts to comply with applicable statutes and
regulations, the Company has from time to time reformulated, eliminated or
relabeled certain of its products and revised certain provisions of its sales
and marketing program. The Company believes it is in material compliance with
the various consent decrees and with applicable federal and state rules and
regulations regulating its products and marketing program. Compliance with the
provisions of national, state and local environmental laws and regulations has
not had a material effect upon the capital expenditures, earnings, financial
position, liquidity or competitive position of the Company.
The Company cannot determine what effect additional governmental
regulations or administrative orders, when and if promulgated, would have on its
business in the future. They could, however, require the reformulation of
certain products to meet new standards, require the recall or discontinuance of
certain products not capable of reformulation, or impose additional record
keeping, expanded documentation of the properties of certain products, expanded
or different labeling, and scientific substantiation. Any or all of such
requirements could adversely affect the Company's operations and its financial
condition.
EMPLOYEES
At February 1, 1997, the Company employed 10,906 people, of whom
approximately 9,398 were employed in Retail; 816 were employed in Manufacturing;
63 were employed in Franchising and 629 were employed in corporate support
functions. None of the Company's employees were covered by a collective
bargaining agreement.
ITEM 2. PROPERTIES
The Company leases its stores, distribution centers, current office
facilities and manufacturing facilities in the United Kingdom and Australia. The
major property items are leasehold improvements and furniture and fixtures found
in these locations. Leasehold improvements are depreciated over the shorter of
10 years or the term of the lease. Furniture and fixtures are amortized over the
estimated useful life of the assets. Of the approximately 1,833 domestic
company-owned stores operating at February 1, 1997, an estimated 60% of the
store leases are scheduled for renewal over the next five years.
The Company owns its vitamin production facility in Greenville, South
Carolina. The Company has made annual capital investments in the facility for
expansion purposes to meet rising product demands.
In April, 1997 the Company began to relocate its corporate headquarters in
Pittsburgh to a newly renovated building in which the Company has acquired a
partnership interest.
ITEM 3. LEGAL PROCEEDINGS
For information concerning Legal Proceedings, see Note 13 of Notes to
Consolidated Financial Statements under Item 8 of this Report, which information
is herein incorporated by reference.
The Company is presently engaged in various other legal actions and
governmental proceedings, and, although ultimate liability cannot be determined
at the present time, the Company is currently of the opinion that the amount of
any such liability from these other actions and proceedings when taking into
consideration the Company's product liability coverage, will not have a material
adverse impact on its financial position, results of operations or liquidity.
11
<PAGE> 14
The Company, like other retailers, distributors and manufacturers of
products that are ingested faces an inherent risk of exposure to product
liability claims in the event that, among other things, the use of its products
results in injury. With respect to product liability coverage the Company
currently has a $1 million self-insured retention per occurrence and aggregate,
followed by a primary products liability policy of $1 million per occurrence and
aggregate, followed by an additional $2 million self-insured retention per
occurrence and aggregate, and an additional $80 million of umbrella liability
insurance coverage. There can be no assurance that such insurance will continue
to be available at a reasonable cost, or if available, will be adequate to cover
liabilities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A special meeting of the stockholders of the Company was held in
Pittsburgh, Pennsylvania on October 25, 1996.
(b) Not applicable.
(c) At the meeting the following matters were voted upon, with the vote
indicated below:
(I) A proposal to approve the General Nutrition Companies, Inc. 1996
Long Term Incentive the 1996 Management and Director Stock Option
Plan.
44,443,430 FOR 3,557,209 AGAINST 1,360,586 ABSTAIN
(d) Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
CAPITAL STOCK INFORMATION
Stock Exchange Listing
The Company's common stock is traded on the NASDAQ stock market under the symbol
GNCI. Options are traded on the Chicago Board Options Exchange.
COMMON STOCK PRICES:
<TABLE>
<CAPTION>
1995 1996
---------------- ---------------
QUARTER HIGH LOW HIGH LOW
- ------------------------------------------------------- ----- ------ ----- -----
<S> <C> <C> <C> <C>
First.................................................. 14 5/16 11 11/16 26 17 3/4
Second................................................. 19 7/8 12 1/4 21 1/4 13 1/2
Third.................................................. 23 1/4 17 1/2 19 1/2 13 1/4
Fourth................................................. 26 1/8 18 3/4 20 15 3/4
</TABLE>
REGISTRAR AND TRANSFER AGENT:
Fleet National Bank
Shareholder Services
Mail Stop RI/OP-0317
P.O. Box 366
Providence, RI 02901
On April 25, 1997, the Company had approximately 931 stockholders of record
and in excess of 16,000 beneficial shareholders. General Nutrition Companies,
Inc. has never paid dividends on its Common Stock, currently intends to reinvest
its earnings for use in the business and does not expect to pay cash dividends
in the foreseeable future. The Company's credit agreement contains certain
restrictions on the Company's ability to pay dividends.
During fiscal 1996, the Board of Directors authorized up to $160 million to
be available to purchase shares of the Company's common stock, from time to
time, in the open market or in privately negotiated transactions. On March 11,
1997, the Board of Directors authorized an additional $150 million to be
available for such purchases. At April 28, 1997 an aggregate of 11.5 million
shares have been repurchased for $191.2 million.
12
<PAGE> 15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
5-YEAR SUMMARY OF CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT WEIGHTED AVERAGE SALES AND PER
SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net revenue............................... $453,527 $546,253 $672,945 $845,952 $990,845
Cost of sales, including costs of
warehousing, distribution and
occupancy............................... 288,335 340,686 419,136 519,420 614,875
Selling, general and administrative....... 115,023 129,741 155,384 187,833 223,557
Restructuring charge...................... -- -- -- -- 80,243
Compensation expense...................... 6,077 60 675 1,583 11,823
Loss on discontinuance of Gymees Joint
Venture................................. 700 -- -- -- --
-------- -------- -------- -------- --------
Earnings before interest and income taxes
(operating earnings).................... 43,392 75,766 97,750 137,116 60,347
Interest expense.......................... 33,037 23,327 19,669 20,076 17,341
Income taxes.............................. 5,595 22,851 32,337 47,894 39,071
-------- -------- -------- -------- --------
Earnings from continuing operations....... 4,760 29,588 45,744 69,146 3,935
Less: Preferred stock dividends........... 5,219 -- -- -- --
-------- -------- -------- -------- --------
Earnings (loss) before extraordinary
items................................... $ (459) $ 29,588 $ 45,744 $ 69,146 $ 3,935
======== ======== ======== ======== ========
Earnings (loss) per share for common
shareholders before extraordinary
items................................... $ (0.01) $ 0.38 $ 0.57 $ 0.81 $ 0.05
======== ======== ======== ======== ========
Average number of shares outstanding...... 49,288 77,132 80,028 85,860 86,294
OPERATING DATA:
Number of stores (at end of period):
Company-owned GNC stores................ 926 1,044 1,181 1,462 1,760
Company-owned other stores.............. -- -- 184 122 113
Franchised stores....................... 290 509 750 959 1,174
-------- -------- -------- -------- --------
Total system-wide stores.................. 1,216 1,553 2,115 2,543 3,047
Weighted average annual sales per square
foot (company-owned GNC stores)......... $ 243 $ 271 $ 267 $ 283 $ 262
Weighted average sale per customer
(company-owned GNC stores).............. $ 14.04 $ 16.08 $ 17.75 $ 19.60 $ 21.48
Comparable store sales growth
(company-owned GNC stores).............. 12.6% 12.5% 5.8% 10.3% 0.3%
</TABLE>
<TABLE>
<CAPTION>
AT AT AT AT AT
FEBRUARY 6, FEBRUARY 5, FEBRUARY 4, FEBRUARY 3, FEBRUARY 1,
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................ $ 20,043 $ 42,511 $ 74,274 $ 52,681 $ 133,688
Total assets................... 465,669 466,726 626,571 682,851 779,355
Total outstanding
indebtedness................. 274,928 221,207 316,501 218,472 378,869
Shareholders' equity........... 79,333 160,231 202,837 326,657 240,223
</TABLE>
13
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND
FINANCIAL CONDITION
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains statements relating to future
results of the Company (including certain projections and business trends) that
are "forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected as
a result of certain risks and uncertainties, including but not limited to
changes in political and economic conditions; demand for and market acceptance
of new and existing products, as well as other risks and uncertainties detailed
from time to time in the filings of the Company with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
The Company's revenue and earnings are generated primarily from its three
business segments, Retail, Franchising and Manufacturing. The following table
summarizes the results by segment for years 1994, 1995 and 1996. The following
information should be read in conjunction with Note 15 of Notes to the
Consolidated Financial Statements.
<TABLE>
<CAPTION>
% OF TOTAL % OF TOTAL % OF TOTAL
1994 REVENUE 1995 REVENUE 1996 REVENUE
-------- ---------- -------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
NET REVENUE:
Retail............................. $512,591 76.2% $652,185 77.1% $726,758 73.3%
Franchising........................ 103,008 15.3 147,621 17.5 188,296 19.0
Manufacturing...................... 57,316 8.5 46,146 5.4 75,791 7.7
-------- ----- -------- ----- -------- -----
672,915 100.0 845,952 100.0 990,845 100.0
Corporate.......................... 30 -- -- -- -- --
-------- ----- -------- ----- -------- -----
Consolidated......................... $672,945 100.0% $845,952 100.0% $990,845 100.0%
======== ===== ======== ===== ======== =====
OPERATING EARNINGS:
Operating earnings before
restructuring, compensation, and
non-recurring charges
Retail............................. $ 76,627 14.9% $104,495 16.0% $ 98,282 13.5%
Franchising........................ 17,117 16.6 28,281 19.2 40,714 21.6
Manufacturing...................... 23,579 41.1 28,062 60.8 38,213 50.4
Corporate.......................... (18,898) -- (22,139) -- (24,796) --
-------- -------- --------
98,425 14.6 138,699 16.4 152,413 15.4
Restructuring, compensation, and non-
recurring charges.................. 675 0.1 1,583 0.2 92,066 9.3
-------- -------- --------
Operating earnings................... 97,750 137,116 60,347
Interest expense, net................ 19,669 2.9 20,076 2.4 17,341 1.8
Income taxes......................... 32,337 4.8 47,894 5.7 39,071 3.9
Extraordinary item................... 8,550 1.3 -- --
-------- -------- --------
Net earnings......................... $ 37,194 5.5% $ 69,146 8.2% $ 3,935 0.4%
======== ======== ========
</TABLE>
1996 VERSUS 1995
Consolidated. During 1996, consolidated revenue increased to $990.8 million
from $846.0 million in 1995. This 17.1% increase was generated through growth in
each of the Company's business segments as a result of the continuing store
expansion program that the Company began in the early 1990's. At February 1,
1997, the Company sold its products through 1,873 company-owned and 1,174
franchise stores located in all 50 states, Puerto Rico and 18 international
markets. Total system-wide retail sales, which includes franchise retail sales,
increased to $1.1 billion in 1996 from $930 million in 1995, an increase of
18.3%.
Consolidated operating earnings, before restructuring, compensation, and
non-recurring charges increased 9.9% to $152.4 million compared with $138.7
million in 1995. The increase was generated by the
14
<PAGE> 17
Company's Franchising and Manufacturing segments which continued to leverage the
store expansion program. Consolidated operating earnings declined as a
percentage of net revenue by 1% to 15.4% due primarily to three major factors:
i) reduced sales in Retail's Traditional stores coupled with increases in wages
and certain occupancy costs in those stores; ii) new stores operating earnings
as a percentage of sales is lower, on average, than existing locations until the
new stores reach their third year of operations and; iii) advertising
expenditures were increased in 1996 to $42.1 million or 4.3% of net revenue
compared with $33.4 million or 4.0% in 1995.
Retail. Consolidated retail revenue was $726.8 million in 1996 versus
$652.2 million in 1995, an increase of 11.4%. The Company's retail revenue is
generated primarily from the operation of "GNC" stores, the Company's core
retail business. GNC stores contributed $661.6 million and $608.8 million in
retail revenue in 1996 and 1995, or 91.0% and 93.3% of consolidated retail
revenues, respectively. The percentage of retail revenue contributed by GNC
stores decreased during 1996 as a result of increased sales made by the
Company's non-GNC store retail businesses, Natures Food Centres, Health and Diet
Centres, Nature's Fresh, and Amphora. Comparable store sales for GNC stores
increased by 0.3% in 1996 and 10.3% in 1995. Comparable store sales were
negatively affected in 1996 as a result of a decline in diet and herb product
sales, the world-wide shortage of natural vitamin E, which the Company uses in
many of its products including most multiple vitamins, and negative publicity
concerning ephedra products.
With comparable store sales at 0.3% in 1996, the increase in retail revenue
was generated primarily by new stores and a rising average sales per customer
transaction, much of which is attributed to the continued customer acceptance of
the Gold Card program and the Company's shift to higher margin proprietary
branded specialty products. In 1996, the number of Gold Card holders grew to
approximately 2.4 million, with more than 7,000 new card holders being added
each week. Additionally in 1996, 231 new proprietary branded product
introductions accounted for $14.3 million in retail sales in company-owned
stores.
Operating earnings contributed by the retail segment in 1996, before
restructuring, compensation and non-recurring charges decreased to $98.3 million
or 5.9% when compared with 1995. The decrease was due to lower sales in the GNC
Traditional stores, and lower initial sales volume in the new stores coupled
with increases in store wages, occupancy costs and advertising.
Franchising. Revenue contributed by the franchise segment increased to
$188.3 million in 1996 from $147.6 million in 1995, an increase of 27.6%.
Franchising revenues accounted for 19.0% and 17.5% of consolidated revenues in
1996 and 1995, respectively. Franchise revenue and profits are generated
primarily from the sale of products at wholesale prices to franchisees and the
royalties collected on the franchisees' retail sales. Retail sales in the
franchise stores increased to $347.8 million in 1996 versus $277.8 million in
1995. Royalties and wholesale sales represented 90.6% and 90.3% of revenue in
1996 and 1995, respectively. Franchises reported comparable store sales
increases of 8.5% in 1996 compared with 15.5% in 1995. Those franchisees that
are in their first year of reporting comparable store sales reported a 21.1%
increase over their first year of operations.
Operating earnings from the franchise segment increased 44.0% in 1996. The
increases in both franchising revenue and operating earnings is attributable to
the continued opening of franchised locations, 215 in 1996 net of store
closings, the continued retail product sales to existing franchisees, and the
continued leverage on the selling, general, and administrative expenses. At
February 1, 1997, 1,174 franchised GNC stores were in operation.
The Company believes the revenue and earnings growth in the franchise
segment will continue in 1997 as in total, at February 1, 1997 there were 218
domestic and 1 international franchises awarded that had not yet opened. In
addition, 41 domestic and 373 international stores will be scheduled to open
through development agreements over the next 5 years.
Manufacturing. Revenue contributed by the manufacturing segment increased
to $75.8 million in 1996 versus $46.1 million in 1995, an increase of 64.2%. The
Company's primary manufacturing operation, located in Greenville, South
Carolina, accounted for 84.7% of manufacturing revenue. Total manufacturing
revenue,
15
<PAGE> 18
including sales to other segments, which are eliminated from total revenue,
increased 35.8% to $239.7 million in 1996, compared with $176.5 million in 1995.
Third-party sales, at the Greenville, South Carolina facility. increased by
44.6%, which was attributable to the increase in demand for commodity vitamins
and the availability of additional plant capacity to service third-party
customers. Despite the favorable increase in third-party product sales during
1996, operating earnings at Manufacturing decreased as a percentage of
manufacturing revenue by 10.4%. Operating earnings in Manufacturing were 50.4%
of net manufacturing revenues in 1996 compared with 60.8% in 1995. The
percentage decrease reflects the operating earnings generated from both
third-party and intersegment sales as a ratio to third-party sales only. The
ratio of operating earnings to net third-party revenue will be effected at the
consolidated level as third-party sales increase or decrease when compared with
the previous year.
The Company believes that both intersegment and third-party sales will
continue to increase in 1997 due to the continuation of the store expansion
program for new company-owned and franchised stores, as well as increases in
plant capacity permitting a greater number of third-party orders.
The Company's manufacturing operations located in the United Kingdom,
Health and Diet Food, and DFC Thompson in Australia accounted for 5.2% of total
manufacturing revenue, including sales to other segments. Third-party sales at
Health and Diet Food and DFC Thompson were $11.6 million or 15.3% of
consolidated third-party revenues.
Non-Operating Expenses. Interest expense, including amortization of
deferred financing fees declined to $17.3 million in 1996 compared with $20.1
million in 1995. The decline in interest expense for 1996 is primarily the
result of two events; i) in February 1996, the Company sold 1.6 million shares
of common stock and repaid $34.0 million on its bank term loan and; ii) in March
1996, the Company amended and restated the existing credit agreement providing
for a revolving credit facility with reduced interest rates which are based on
prime or Eurodollar rates plus an add on margin of .5%. The reduction in
interest expense as a result of these events is partially offset by the
increased borrowings required to finance the stock repurchases made during the
year.
Restructuring and Compensation Expense Charges. During 1996, the Company
recorded two non-cash charges which significantly impacted the statement of
operations. A restructuring charge of $80.2 million was recorded related to the
write-off of goodwill, property, and equipment, inventories, and other assets
associated with managements' decision to discontinue the Nature's Food Centres
concept and certain categories of products including fitness and apparel and the
Company's current line of cosmetics. The Company also recorded a charge to
compensation expense of $11.8 million in connection with the 1996 Management
Stock Purchase and Option plans.
1995 VERSUS 1994
Consolidated. The Company added 428 new stores net of store closings in
1995, of which 219 are operated by the Company and 209 are franchised. At
February 3, 1996, the Company sold its products through 1,584 Company-owned and
959 franchise stores located in all 50 states, Puerto Rico and 16 international
markets. Total system-wide retail sales were $930 million, an increase of 31.4%
over 1994. Net revenue increased $173.0 million to $846.0 million, or 25.7% in
1995 when compared with 1994.
The Company continued to leverage its sales growth as operating earnings
before non-cash compensation and non-recurring charges grew to 16.4% of revenue
in 1995 compared with 14.6% of revenue in 1994. Cost of sales including costs of
warehousing, distribution and occupancy and selling general and administrative
decreased as a percentage of net revenue by 0.9% and 0.8%, respectively, when
compared with 1994.
Retail. Retail revenue increased approximately 27.2% in 1995 when compared
with 1994. The increase reflects the addition of 219 stores, the full year
effect of the Nature Food Centre acquisition in 1994, and the comparable store
sales increases of 10.3% for GNC stores operating at least one year. The Company
attributes the retail comparable store sales increases to continued customer
acceptance of the Gold Card program and the Company's ability to develop and
market new products. Additionally in 1995, the 220 new private label product
introductions, represented approximately $19.2 million in retail sales in
company-owned stores.
16
<PAGE> 19
Operating earnings in Retail increased as a percentage of retail revenue by
1.1%, due primarily to continued leverage in the selling, general and
administrative expenses, and increased gross margin as the Company continues to
shift the mix of products to higher margin proprietary, specialty products.
Franchising. The franchise segment added a net 209 stores in 1995 or 27.9%
more locations than in 1994. Net revenue and operating earnings for Franchising
in 1995 increased 43.3% and 65.2%, respectively, when compared with 1994. Retail
sales in the franchise stores increased 42.5% to $277.8 million in 1995 when
compared with 1994. Royalties and wholesale sales represented 90.3% and 89.1% of
revenue in 1995 and 1994, respectively. Franchises reported comparable store
sales increases of 15.5% in 1995 as compared with 1994. Those franchisees that
are in their first year of reporting comparable store sales reported a 24.6%
increase over their first year of operations. Operating earnings grew to 19.2%
of net franchise revenue as compared with 16.6% of net franchise revenue in
1994. The percentage increase was the result of continued leverage on the
selling, general and administrative areas in franchising.
Manufacturing. Total revenue including sales to other segments of the
Company increased 21.7% in 1995 when compared with 1994. Third-party sales
declined by 19.5% in 1995 when compared with 1994. The decline was due primarily
to reductions in orders, from third-party customers, for certain commodity
vitamins and the increasing requirements to produce for the Company's retail
stores. Increased inter-segment business allowed for continued economies in
manufacturing and is reflected in the 19.0% increase in Manufacturing's
operating earnings in 1995 versus 1994. Operating earnings in Manufacturing were
60.8% of net manufacturing revenue in 1995 compared with 41.1% in 1994.
Non-Operating Expenses. Interest expense, including amortization of
deferred financing fees increased 2.1% or $0.4 million in 1995 when compared
with 1994. The increase is due primarily to borrowings for the purchase of
Nature Food Centre, Inc. in the fourth quarter of 1994, offset partially by
favorable changes in interest rates during the year.
REVIEW OF FINANCIAL CONDITION
Analysis of Liquidity and Capital Resources. In the years presented, the
primary sources of cash have been the Company's operations, amounts available on
the revolving credit facility, and proceeds from the issuance of common stock.
The primary uses of cash in each of the years reported, have been to fund the
Company's store expansion program through the construction of new stores,
renovation of existing stores, the acquisition of independent and franchised
locations, and in 1996 to repurchase the Company's common stock. The average
cost to build or renovate a GNC store ranges from $63,000 to $117,000, depending
on type and size of the store. Additionally, the Company continues to increase
capacities at its distribution and manufacturing facilities. The Company will
continue its store, distribution and manufacturing expansion programs in 1997
and will fund the requirements for these programs primarily from operations and
through borrowings on the revolving credit facility. The Company has no material
commitments to make capital expenditures during 1997.
The Company's cash flows from operating, investing, and financing
activities as reflected in the Consolidated Statements of Cash Flows (see Item
8) is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
FEBRUARY 3, FEBRUARY 1,
1996 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash provided by (used in)
Operating activities.......................... $ 120,735 $ 59,634
Investing activities.......................... (82,776) (107,380)
Financing activities.......................... (37,857) 47,161
Effect of exchange rate changes on cash....... (102) 585
--------- ---------
Net change in cash.............................. $ -- $ --
========= =========
</TABLE>
17
<PAGE> 20
Operating Activities. Net earnings, adjusted for non-cash activities and
before changes in the operating assets and liabilities, increased in 1996 to
$127.2 million, an 18.1% increase over the $107.7 million generated in 1995. Net
cash provided by operating activities declined to $59.6 million from $120.7
million in 1995 as a result of changes in operating assets and liabilities.
Operating assets and liabilities increased in 1996 by $67.6 million over
1995, primarily due to increases in inventories and accounts receivable.
Inventory increased $54.6 million as a result of: i) new store expansion
requirements; ii) the increase in new product introductions at the store level
and; iii) the stocking of the Company's new full line distribution center
located in Phoenix, Arizona. The increase in accounts receivable of $18.1
million was the result of increased volume of third-party product sales at
Manufacturing as well as the increased product sales to franchisees.
Investing Activities. The Company's primary use of funds in both 1995 and
1996 was for capital expenditures. Capital expenditures for 1996 totaled $69.9
million versus $57.2 million in 1995. In 1996, $52.9 million of these
expenditures were used to finance the Company's store expansion program and
$17.0 million to add additional capacity to the distribution and manufacturing
facilities. The Company anticipates total capital expenditures of approximately
$60.0 million in 1997.
Payments made in connection with acquisitions were $14.2 million in 1996
versus $5.2 million in 1995. In 1996, the acquisitions of Nature's Fresh
Northwest, Inc. and Flying Eagle Stores, Inc. accounted for 85% of total funds
used in acquisitions.
The Company continues its investment in its franchise program adding a net
$8.0 million in new franchisee notes receivable. The notes were generated
primarily from the Company's financing of both the store construction and
initial inventory purchases by franchisees. In 1995, $7.5 million in franchise
financing was provided.
The Company loaned $7.1 million in 1996 and $4.7 million in 1995 to a
related party in connection with the development of the Company's new
headquarters facility. Under the Company's revolving credit facility, the
Company is permitted to lend up to $30.0 million.
Financing Activities. In 1996, net borrowings on the Company's revolving
credit facility was $193.9 million, $156.7 million of which, net of $2.9 million
received for the sale of put options, was used to repurchase 10.0 million shares
of the Company's common stock. The Company also repaid $34.0 million on its bank
term loan with funds received from the sale, in February 1996, of approximately
1.6 million shares of its common stock at an average price of approximately
$20.75 per share.
On March 21, 1996, the Company amended and restated its credit agreement to
provide for a $400 million revolving credit facility with a balloon payment due
March 29, 2001. The March 21, 1996 agreement was subsequently amended and
restated on March 31, 1997, providing for a $700 million revolving credit
facility with a balloon payment due on March 31, 2002. Interest on the new
agreement is variable based on prime and/or Eurodollar borrowing rates, plus or
minus applicable margin adjustments. At February 1, 1997, the Company had $21.9
million available on its revolving credit facility after a reduction for
outstanding letters of credit of $2.9 million. At March 31, 1997, the Company
had $334.3 million available on the amended and restated $700 million revolving
credit facility after a reduction for outstanding letters of credit of $2.9
million.
During 1996, the Company's Board of Directors authorized $160.0 million of
the Company's stock be repurchased from time to time in the open market or in
privately negotiated transactions. On March 11, 1997, the Board of Directors
increased the maximum amount of capital that can be utilized for the repurchase
of shares to $310 million. At April 28, 1997, 11.5 million shares of stock have
been repurchased for $191.2 million.
18
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS AND SHAREHOLDERS
GENERAL NUTRITION COMPANIES, INC.
We have audited the accompanying consolidated balance sheets of General
Nutrition Companies, Inc. and subsidiaries as of February 1, 1997 and February
3, 1996 and the related consolidated statements of operations, shareholders'
equity and cash flows for the years ended February 1, 1997, February 3, 1996 and
February 4, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of General Nutrition Companies,
Inc. and subsidiaries as of February 1, 1997 and February 3, 1996 and the
results of their operations and their cash flows for the years ended February 1,
1997, February 3, 1996 and February 4, 1995 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
March 31, 1997
Pittsburgh, Pennsylvania
19
<PAGE> 22
GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 3, FEBRUARY 1,
1996 1997
----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current Assets:
Receivables...................................................... $ 38,292 $ 58,711
Inventories...................................................... 147,723 198,361
Deferred taxes................................................... 9,647 18,903
Other current assets............................................. 13,699 17,498
--------- ---------
Total current assets.......................................... 209,361 293,473
Property, plant and equipment, net................................. 145,969 175,352
Other assets....................................................... 28,515 44,404
Deferred financing fees, net of accumulated amortization of $889
and $1,538....................................................... 3,141 3,066
Goodwill, net of accumulated amortization of $46,667 and $52,907... 295,865 263,060
--------- ---------
$ 682,851 $ 779,355
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................. $ 74,944 $ 79,958
Accrued salaries, wages, vacations and related taxes............. 18,225 17,198
Accrued income taxes............................................. 4,465 7,008
Other current liabilities........................................ 37,580 54,637
Long-term debt, current portion.................................. 21,466 984
--------- ---------
Total current liabilities..................................... 156,680 159,785
Long-term debt..................................................... 197,006 377,885
Deferred taxes on income........................................... 2,508 1,462
Commitments and contingencies...................................... -- --
Shareholders' Equity:
Common stock, $.01 par value:
Authorized 200,000,000 shares, issued and outstanding, including
shares in treasury, 87,744,019 shares at February 3, 1996 and
91,287,289 shares at February 1, 1997............................ 877 913
Additional paid-in capital......................................... 253,521 319,297
Stock options outstanding.......................................... 4,769 10,917
Subscriptions receivable........................................... -- (3,295)
Currency translation adjustment.................................... (102) 483
Accumulated earnings............................................... 67,592 71,527
--------- ---------
326,657 399,842
Treasury stock, at cost, 10,000,000 shares at February 1, 1997..... -- (159,619)
--------- ---------
326,657 240,223
--------- ---------
$ 682,851 $ 779,355
========= =========
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
20
<PAGE> 23
GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
FEBRUARY 4, FEBRUARY 3, FEBRUARY 1,
1995 1996 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net revenue............................................ $ 672,945 $ 845,952 $ 990,845
Cost of sales, including costs of warehousing,
distribution
and occupancy........................................ 419,136 519,420 614,875
--------- --------- ---------
253,809 326,532 375,970
Selling, general and administrative.................... 147,430 179,314 214,002
Compensation expense................................... 675 1,583 11,823
Amortization of goodwill............................... 7,954 8,519 9,555
Restructuring charge................................... -- -- 80,243
--------- --------- ---------
Operating earnings..................................... 97,750 137,116 60,347
Interest expense, net.................................. 19,669 20,076 17,341
--------- --------- ---------
Earnings before income taxes........................... 78,081 117,040 43,006
Income taxes........................................... 32,337 47,894 39,071
--------- --------- ---------
Earnings before extraordinary items.................... 45,744 69,146 3,935
Extraordinary loss from early retirement of debt, net
of
income tax benefit of $4,604......................... 8,550 -- --
--------- --------- ---------
Net earnings........................................... $ 37,194 $ 69,146 $ 3,935
========= ========= =========
Primary earnings per share:
From earnings before extraordinary item.............. $ 0.57 $ 0.81 $ 0.05
From extraordinary item.............................. (0.11) -- --
--------- --------- ---------
From net earnings.................................... $ 0.46 $ 0.81 $ 0.05
========= ========= =========
Primary weighted average number of shares
outstanding.......................................... 80,028 85,860 86,294
========= ========= =========
Fully diluted earnings per share:
From earnings before extraordinary item.............. $ 0.54 $ 0.78 $ 0.05
From extraordinary item.............................. (0.10) -- --
--------- --------- ---------
From net earnings.................................... $ 0.44 $ 0.78 $ 0.05
========= ========= =========
Fully diluted weighted average number of
shares outstanding................................... 88,294 90,257 86,408
========= ========= =========
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
21
<PAGE> 24
GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------
ADDITIONAL STOCK CURRENCY ACCUMULATED
CLASS PAID-IN OPTIONS SUBSCRIPTIONS TRANSLATION EARNINGS/ TREASURY
A B CAPITAL OUTSTANDING RECEIVABLE ADJUSTMENT (DEFICIT) STOCK TOTAL
---- ----- ---------- ----------- ------------- ---------- ----------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY
5, 1994.......... $736 $ 23 $192,854 $ 5,310 $ -- $ -- $ (38,692) $ -- $160,231
Net earnings...... -- -- -- -- -- -- 37,194 -- 37,194
Common stock
issued........... -- -- 278 -- -- -- -- -- 278
Stock options
granted.......... -- -- -- 675 -- -- -- -- 675
Stock options
exercised........ 9 -- 5,473 (1,019) -- -- (4) -- 4,459
Conversion of
Class B to Class
A................ 23 (23) -- -- -- -- -- -- --
---- ----- ---------- ----------- ------ --- ----------- --------- --------
BALANCE, FEBRUARY
4, 1995.......... 768 -- 198,605 4,966 -- -- (1,502) -- 202,837
Net earnings...... -- -- -- -- -- -- 69,146 -- 69,146
Common stock
issued........... -- -- 341 -- -- -- -- -- 341
Stock options
granted.......... -- -- -- 1,583 -- -- -- -- 1,583
Stock options
exercised........ 10 -- 9,725 (1,780) -- -- (4) -- 7,951
Warrants
exercised........ 16 -- 3,163 -- -- -- (8) -- 3,171
Conversion of
junior
subordinated
notes............ 82 -- 39,913 -- -- -- (40) -- 39,955
Business
combination...... 1 -- 1,774 -- -- -- -- -- 1,775
Translation
adjustments...... -- -- -- -- -- (102) -- -- (102)
---- ----- ---------- ----------- ------ --- ----------- --------- --------
BALANCE, FEBRUARY
3, 1996.......... 877 -- 253,521 4,769 -- (102) 67,592 -- 326,657
Net earnings...... -- -- -- -- -- -- 3,935 -- 3,935
Common stock
issued........... 23 -- 44,064 -- -- -- -- -- 44,087
Subscriptions
receivable from
stock sales...... -- -- -- -- (3,295) -- -- -- (3,295)
Stock options
granted.......... -- -- -- 7,492 -- -- -- -- 7,492
Stock options
exercised........ 7 -- 9,645 (1,344) -- -- -- -- 8,308
Sale of put
options.......... -- -- 2,850 -- -- -- -- -- 2,850
Treasury stock
purchases........ -- -- -- -- -- -- -- (159,619) (159,619)
Business
combination...... 6 -- 9,217 -- -- -- -- -- 9,223
Translation
adjustments...... -- -- -- -- -- 585 -- -- 585
---- ----- ---------- ----------- ------ --- ----------- --------- --------
BALANCE, FEBRUARY
1, 1997.......... $913 $ -- $319,297 $10,917 $(3,295) $483 $ 71,527 $(159,619) $240,223
===== ======= ============ ============== ================ ============= =============== ========== =========
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
22
<PAGE> 25
GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
FEBRUARY 4, FEBRUARY 3, FEBRUARY 1,
1995 1996 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................................. $ 37,194 $ 69,146 $ 3,935
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Extraordinary loss from early retirement of debt........................ 8,550 -- --
Restructuring charge.................................................... -- -- 80,243
Compensation expense.................................................... 675 1,583 11,823
Depreciation and amortization........................................... 24,850 32,196 40,533
Amortization of deferred financing fees................................. 862 576 649
(Increase) decrease in deferred taxes................................... (1,384) 1,322 (10,388)
Other, principally loss on disposal of fixed assets..................... 553 2,859 392
Change in operating assets and liabilities:
Increase in receivables............................................... (4,931) (1,316) (18,129)
Increase in inventories............................................... (29,291) (3,956) (54,590)
Increase in other assets.............................................. (287) (2,143) (2,672)
Increase in accrued taxes............................................. 7,164 2,000 2,543
Increase (decrease) in accounts payable and accrued liabilities....... (7,779) 15,563 10,884
(Decrease) increase in other working capital items.................... (5,468) 2,905 (5,589)
--------- -------- ---------
Total adjustments................................................... (6,486) 51,589 55,699
--------- -------- ---------
Net cash provided by operating activities................................... 30,708 120,735 59,634
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................................... (38,578) (57,244) (69,853)
Increase in franchisee notes receivable................................... (8,412) (7,521) (8,024)
Payments for store acquisitions........................................... (3,938) (7,934) (8,081)
Payments made for acquisitions, net of cash acquired...................... (67,523) (5,168) (14,287)
Loan to related party..................................................... -- (4,725) (7,135)
Other..................................................................... 16 (184) --
--------- -------- ---------
Net cash used in investing activities....................................... (118,435) (82,776) (107,380)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on revolving credit facility.................... 66,799 (39,900) 193,901
Retirement of long-term debt.............................................. (142,603) (16,000) (36,268)
Book balance bank overdraft............................................... 10,494 8,892 3,866
Decrease in capital lease obligations..................................... (1,800) (2,133) (1,361)
Borrowings under bank term loan........................................... 160,000 -- --
Redemption of redeemable preferred stock.................................. (49) (134) (450)
Net proceeds from issuance of common stock................................ 1,476 3,316 41,006
Exercise of warrants to purchase common stock............................. -- 3,171 --
Increase in paid-in capital............................................... 3,261 4,931 3,810
Premiums paid on early retirement of debt................................. (5,821) -- --
Net payments for treasury stock........................................... -- -- (159,619)
Proceeds from sale of put options......................................... -- -- 2,850
Increase in deferred financing fees....................................... (4,030) -- (574)
--------- -------- ---------
Net cash provided by (used) in financing activities......................... 87,727 (37,857) 47,161
Effect of exchange rate changes on cash..................................... -- (102) 585
--------- -------- ---------
Net change in cash.......................................................... -- -- --
--------- -------- ---------
Beginning and ending balance, cash.......................................... $ -- $ -- $ --
========= ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................................ $ 25,796 $ 20,159 $ 17,121
Income taxes............................................................ $ 23,139 $ 39,769 $ 41,556
</TABLE>
- ---------
Non-cash transactions:
(a) An adjustment of $1.8 million was made to goodwill in 1995 resulting from
finalization of certain NFC preacquisition contingencies.
(b) The Company converted $40 million of its junior subordinated notes in 1995
into approximately 8.2 million shares of common stock at a rate of $4.88 per
share.
(c) The Company issued 76,520 shares with a value of approximately $1.8 million
as part of the acquisition of Health & Diet Group Limited in 1995.
(d) The Company issued 595,000 shares with a value of approximately $9.2 million
in 1996 as part of the acquisition of Nature's Fresh Northwest, Inc.
(e) The Company extended net loans to executives of $3.3 million in 1996
relating to the 1996 Management Stock Purchase Plan.
Notes to Consolidated Financial Statements are an integral part of these
statements.
23
<PAGE> 26
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Reporting. The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries after elimination of
intercompany balances and transactions. The Company's fiscal year ends on the
Saturday closest but not prior to January 31 of each year. The fiscal year
consists of fifty-two or fifty-three weeks divided into four quarters; the first
three quarters contain twelve weeks, and the last quarter contains sixteen weeks
in a fifty-two week year and seventeen weeks in a fifty-three week year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition. The Company operates predominately as a retailer
through company-owned and franchised stores, a majority of which are located in
the 50 United States and Puerto Rico, and 18 international countries. The retail
stores offer a variety of vitamin and mineral supplements, sports nutrition
products and herbs, and is also a leading provider of personal care, and other
health-related products. Revenue is recognized by the retail segment upon sale
of product to the customer.
The Company's franchise segment generates revenues through franchise fees,
product sales to franchisees, royalties and interest income on the financing of
the franchise locations. The franchisees purchase a majority of the products
they sell from the Company at wholesale prices. Franchisee fees are recognized
by the Company at the time of the store opening. Revenue on product sales to
franchisees is recognized by the Company as product is shipped. Remaining
sources of income are recognized as earned.
The manufacturing segment sells product primarily to the other Company
segments and a lesser amount to third-party customers. Revenue is recognized as
product is shipped. All intercompany transactions are eliminated in
consolidation.
Reclassifications. Certain amounts in previously issued financial
statements have been reclassified to conform to the 1996 presentation.
Capital Structure. On October 10, 1995, the shareholders approved an
increase in the authorized number of shares of all classes of common stock from
100.0 million to 200.0 million shares and eliminated the previously authorized
5.0 million shares of Class B Common Stock. On August 21, 1995 the Company's
Board of Directors authorized a two-for-one stock split effected in the form of
a 100 percent stock dividend distributed on October 17, 1995 to shareholders of
record on September 8, 1995. Shareholders' equity has been restated to give
retroactive recognition to the stock split in prior periods by reclassifying
from retained earnings to common stock the par value of the additional shares
arising from the split. In addition, all references in the consolidated
financial statements to number of shares, per share amounts, stock option data
and market prices of the Company's common stock have been restated.
Cash. The Company utilizes a cash management system under which a book
balance cash overdraft exists for the Company's primary disbursement accounts.
This overdraft represents uncleared checks in excess of cash balances in bank
accounts. The Company's funds are borrowed on an as needed basis to pay for
clearing checks. At February 3, 1996, and February 1, 1997, cash overdrafts of
$8.9 million and $3.9 million, respectively, were included in accounts payable.
Inventories. Inventories are stated at the lower of cost or market on a
FIFO (first in, first out) basis.
Depreciation and Amortization. Property, plant and equipment are recorded
at cost. Depreciation and amortization are provided using the straight-line
method over the estimated useful life of the property.
24
<PAGE> 27
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Amortization of improvements to leased premises is also provided using the
straight-line method over the estimated useful life of the improvements or over
the life of the related leases if such periods are shorter. The Company provides
tax depreciation in conformity with the provisions of applicable tax law.
Amortization of goodwill is provided on a straight-line basis over 40
years, except for goodwill associated with the purchase of existing franchise
stores, acquisitions of independent stores, and business combinations, for which
the amortization periods range from 10 to 15 years.
Depreciation and amortization of property, plant and equipment was $16.9
million, $23.7 million and $30.9 million for the years ended February 4, 1995,
February 3, 1996, and February 1, 1997, respectively.
Amortization of deferred financing fees is provided using the straight-line
method, which approximates the effective interest rate method, over the term of
the related debt.
The Company periodically evaluates its long-lived assets to determine that
the carrying values have not been impaired.
Advertising Expenditures. The Company recognizes advertising expense as it
is incurred. Advertising expense was $28.4 million, $33.4 million and $42.1
million, respectively, for the years ended February 4, 1995, February 3, 1996
and February 1, 1997.
Pre-Opening Expenditures. The Company recognizes the cost associated with
the opening of new stores as incurred.
Income Taxes. The Company utilizes the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled.
Self-Insurance. The Company self-insures for certain levels of product and
general liability, workers' compensation and health care coverage. Estimated
costs of these programs are accrued based upon known and anticipated claims. Any
adjustments to previously recorded accruals are reflected in current operating
results. The Company has both individual and aggregate stop loss limits
pertaining to the self-insurance and maintains an accrual for self-insurance. At
February 4, 1995, February 3, 1996, and February 1, 1997, the accrual balances
were $563,000, $850,000, and $830,000, respectively. Self-insurance expense for
the years ended February 4, 1995, February 3, 1996, and February 1, 1997 was
$591,000, $701,000, and $740,000, respectively.
Foreign Currency Translation. For all non-U.S. operations, the functional
currency is the local currency. Assets and liabilities of those operations are
translated into U.S. dollars using year-end exchange rates; income and expenses
are translated using the average exchange rates for the reporting period.
Translation adjustments are recorded as a separate component of shareholders'
equity.
Treasury Stock. During 1996, the Company's Board of Directors authorized
the repurchase of up to $160 million of the Company's common stock in the open
market. During 1996, the Company repurchased 10.0 million shares of common stock
at an average cost of $15.96. On March 11, 1997, the Company's Board of
Directors authorized the purchase of an additional $150 million of the Company's
common stock. The Company's revolving credit facility limits the amount of
common stock that can be repurchased.
Stock-Based Compensation. The Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion ("APBO") No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of grant over the amount an employee must pay to acquire the
stock.
25
<PAGE> 28
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Earnings Per Share. Earnings per share are based on the weighted average
number of common shares outstanding during each year. In 1995, the junior
subordinated notes of the Company were converted to common stock. Prior to
conversion, fully diluted earnings per share were based upon the assumed
conversion of the junior subordinated notes into common stock. Net income was
increased by the amount of interest expense that would not have been recognized
if the junior subordinated notes were converted to common stock.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which
establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common stock.
This Statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted. This Statement requires restatement of all prior-period earnings per
share data presented. The basic earnings per share as defined by SFAS No. 128
for net earnings for 1994, 1995 and 1996 would have been $0.49, $0.84 and $0.05,
respectively. The diluted earnings per share as defined by SFAS No. 128
approximates the historically presented fully diluted earnings per share.
NOTE 2. RECEIVABLES
Receivables at period end consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 3, FEBRUARY 1,
1996 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Franchise..................................................... $16,210 $25,406
Manufacturing trade........................................... 14,961 20,373
Current portion of franchise notes............................ 7,323 9,394
Other......................................................... 2,319 5,421
Allowance for uncollectible accounts.......................... (2,521) (1,883)
-------- --------
Total......................................................... $38,292 $58,711
======== ========
</TABLE>
NOTE 3. INVENTORIES
Inventories at period end consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 3, FEBRUARY 1,
1996 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Product ready for sale........................................ $ 122,666 $ 158,800
Unpackaged bulk product and raw materials..................... 21,678 36,121
Packaging supplies............................................ 3,379 3,440
--------- ---------
$ 147,723 $ 198,361
========= =========
</TABLE>
26
<PAGE> 29
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at period end consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 3, FEBRUARY 1,
1996 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Land, buildings and improvements.............................. $ 9,955 $ 16,920
Machinery and equipment....................................... 38,598 60,209
Leasehold improvements........................................ 69,975 73,839
Furniture and fixtures........................................ 79,258 88,310
Capital leases................................................ 8,711 4,554
Construction in progress...................................... 227 10,757
--------- ---------
206,724 254,589
Less accumulated depreciation................................. 60,755 79,237
--------- ---------
$ 145,969 $ 175,352
========= =========
</TABLE>
NOTE 5. OTHER ASSETS
Other assets at period end consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 3, FEBRUARY 1,
1996 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Franchise notes, less current portion......................... $23,429 $29,429
Note due from related party................................... 4,725 12,380
Other......................................................... 361 2,595
-------- --------
$28,515 $44,404
======== ========
</TABLE>
The notes from the Company's franchisees are demand notes, payable
primarily over five years. Interest accrues at the rate of 13.75% per annum and
is payable monthly.
The Company is a party to a partnership agreement to purchase and operate a
building in Pittsburgh, Pennsylvania, which will serve as the Company's
headquarters. The related party note associated with this relationship is a
demand note which includes the option to borrow up to $30 million, with interest
rates variable based on the Company's borrowing rate plus a margin percentage.
The Company does not anticipate the amount due under the note will be repaid
prior to January 31, 1998.
NOTE 6. LONG-TERM DEBT AND LINES OF CREDIT
Long-term debt at period end consisted of the following:
<TABLE>
<CAPTION>
INTEREST FEBRUARY 3, FEBRUARY 1,
RATE 1996 1997
-------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Bank revolving credit facility.................... 5.9-8.25% $ 75,300 $ 375,200
Capital leases.................................... 3,172 3,669
Bank term loan.................................... 5.6-6.10% 140,000 --
--------- ---------
218,472 378,869
Current maturities................................ 21,466 984
--------- ---------
$ 197,006 $ 377,885
========= =========
</TABLE>
27
<PAGE> 30
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
On March 31, 1997, the Company amended and restated its existing credit
agreement. The amended and restated agreement provides for a $700 million
revolving credit facility due March 31, 2002 and subjects the Company to certain
restrictions and covenants, including the restriction to pay dividends. Interest
on the facility is variable based on certain published prime and/or Eurodollar
borrowing rates, plus or minus applicable margin adjustments. Prime advances are
subject to margin adjustments ranging from -.75% to 0%, based on term and dollar
limitations, with Eurodollar advances being subject to margin adjustments
ranging from 0.5% to 1.5% based upon financial performance covenants. At March
31, 1997, the average rates for prime and Eurodollar borrowings were 8.50% and
5.40%, respectively. The revolving credit facility is guaranteed by the Company,
which guaranty is secured by the capital stock of General Nutrition,
Incorporated ("GNI") and also by its domestic subsidiaries.
Prior to the amendment, the agreement provided for a revolving credit
facility of $400 million through March 29, 2001. Interest on the facility was
variable based on prime and/or Eurodollar rates plus add on margins of .5%. The
prime borrowing rate for the year ended February 1, 1997 was 8.25%. Eurodollar
rates, exclusive of the .5% add on margin, ranged from 5.38% to 5.96% for the
year. At February 1, 1997, the Company had $21.9 million available on its
revolving credit facility after excluding $2.9 million restricted letters of
credit.
At February 1, 1997, the Company's total long-term debt maturities are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1997................................................... $ 984
1998................................................... 1,023
1999................................................... 772
2000................................................... 319
2001................................................... 257
Thereafter............................................. 375,514
--------
Total.................................................. $378,869
========
</TABLE>
The Company's net interest expense for all periods is as follows:
<TABLE>
<CAPTION>
FEBRUARY 4, FEBRUARY 3, FEBRUARY 1,
1995 1996 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Composition of interest expense:
Interest on debt................................ $19,055 $19,754 $17,336
Amortization of deferred financing fees......... 862 576 649
Interest income................................. (248) (254) (644)
-------- -------- --------
$19,669 $20,076 $17,341
======== ======== ========
</TABLE>
NOTE 7. RESTRUCTURING CHARGE
During the year ended February 1, 1997, the Company recorded a
restructuring charge of $80.2 million ($70.2 million after tax or $.81 per
share). The charge recorded by the Company related to the write-off of goodwill,
property and equipment, inventories, and other assets associated with
management's decision to discontinue the Nature Food Centres ("NFC") retail
concept. The charge for NFC of $66.7 million included $52.7 million of goodwill.
The remaining $13.5 million of the recorded charge relates to unproductive
assets, primarily inventory relating to Natural Solutions(R), fitness and
apparel products, all of which will be discontinued, as well as excess costs
resulting from retrofitting the Alive prototype store. At February 1, 1997, the
Company maintains an accrual of $5.9 million relating to the restructuring
charge, all of which will be utilized in 1997.
28
<PAGE> 31
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 8. RETIREMENT PLANS
The Company sponsors a 401(k) defined contribution savings plan covering
substantially all employees with more than three months of service. The plan
provides for employee contributions of 1% to 15% of individual compensation into
deferred savings and provides for Company contributions of 25-45% of the first
5% of participant's contributions. The Company may make additional contributions
based upon the achievement of performance goals established by the Board of
Directors. The Company made cash contributions of $0.7 million in 1994 and $1.1
million in 1995 and 1996, respectively.
NOTE 9. FRANCHISE FEE REVENUE
The Company charges franchisees a flat fee, payable prior to the franchise
store opening, as consideration for the franchise rights and initial services
performed by the Company. Once the franchised store is open, the Company has no
further obligations under this fee to the franchisee. Therefore, all franchise
fee revenue is recognized in the period in which a franchise store is opened.
Franchise revenue related to this initial fee is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
FEBRUARY 4, FEBRUARY 3, FEBRUARY 1,
1995 1996 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Initial franchise fee............................. $ 4,410 $ 5,550 $ 6,680
====== ====== ======
Number of operating franchised stores:
Beginning of period............................. 509 750 959
Sales to franchisees............................ 269 294 294
Stores acquired/closed.......................... (28) (85) (79)
------ ------ ------
End of period................................... 750 959 1,174
====== ====== ======
</TABLE>
NOTE 10. FINANCIAL INSTRUMENTS
At February 1, 1997 and February 3, 1996, the Company's fair value of
financial instruments approximates their carrying value. The values of the
financial instruments as of February 1, 1997 and February 3, 1996, respectively,
were as follows: Long-term receivables, $41.8 million and $28.2 million; Bank
term loan, $140.0 million in 1995; Bank revolving credit facility, $375.2
million and $75.3 million.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Long-term receivables: The carrying amounts approximate fair value as the
rate reflects the risk of the debt carried.
Bank debt: The bank loans carrying value approximate fair value as the
rates of borrowing are variable based on current market rates.
NOTE 11. LONG-TERM LEASE OBLIGATIONS
The Company has operating leases covering its retail store locations. The
leases generally provide for an initial term of between seven and ten years, and
some include renewal options for varying terms thereafter. The leases require
minimum monthly rental payments and a pro rata share of common operating
expenses, and most require additional rentals based on a percentage of sales in
excess of specified levels ("Percent Rent"). Real estate taxes, insurance and
other executory costs may be included in the rental payment or charged in
addition to rent. In either case, they have been included in common operating
expense. Other
29
<PAGE> 32
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
leases cover transportation equipment, data processing equipment, distribution
facilities and corporate headquarters.
The composition of the Company's rental expense for all periods presented
included the following components:
<TABLE>
<CAPTION>
FEBRUARY 4, FEBRUARY 3, FEBRUARY 1,
1995 1996 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Retail Stores:
Rent on long-term operating leases, net of
sublease income................................. $43,195 $55,713 $ 70,234
Common operating expense.......................... 13,964 17,765 19,191
Percent Rent...................................... 2,802 3,708 3,166
------- ------- --------
59,961 77,186 92,591
Other............................................. 7,975 5,421 9,598
------- ------- --------
Total............................................. $67,936 $82,607 $ 102,189
======= ======= ========
</TABLE>
Minimum future obligations for noncancellable operating leases with initial
or remaining terms of at least one year in effect at February 1, 1997 are as
follows:
<TABLE>
<CAPTION>
COMPANY FRANCHISE
RETAIL RETAIL SUBLEASE
STORES STORES OTHER (A) INCOME COMBINED
-------- ---------- ---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1997........................ $ 65,024 $ 16,641 $ 5,999 $ (16,641) $ 71,023
1998........................ 61,032 15,670 6,050 (15,670) 67,082
1999........................ 55,941 13,648 5,083 (13,648) 61,024
2000........................ 50,814 11,435 4,606 (11,435) 55,420
2001........................ 44,403 7,284 4,496 (7,284) 48,899
Thereafter.................. 113,464 11,797 32,587 (11,797) 146,051
-------- ------- ------- -------- --------
Total....................... $390,678 $ 76,475 $ 58,821 $ (76,475) $ 449,499
======== ======= ======= ======== ========
</TABLE>
- ---------
(a) Includes $34.4 million for a lease with the related party discussed in Note
5.
30
<PAGE> 33
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 12. INCOME TAXES (TAX BENEFITS)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 3, FEBRUARY 1,
1996 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax:
Current assets:
Operating reserves....................................... $ 3,809 $12,240
Inventory capitalization................................. 3,125 3,113
Deferred revenue......................................... 2,233 2,663
Deferred compensation.................................... 408 702
Other.................................................... 72 185
------ -------
Total current assets........................................ 9,647 18,903
------ -------
Non-current liabilities:
Option compensation...................................... (1,239) (3,821)
Fixed assets............................................. 4,520 6,664
Other.................................................... (773) (1,381)
------ -------
Total non-current liabilities............................... 2,508 1,462
------ -------
Total net deferred taxes.................................... $ 7,139 $17,441
====== =======
</TABLE>
Income taxes (tax benefits) for all periods consist of the following
components, including income tax benefits provided on the extraordinary loss:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
FEBRUARY 4, FEBRUARY 3, FEBRUARY 1,
1995 1996 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal......................................... $25,292 $41,615 $45,992
State........................................... 3,683 5,082 3,890
Foreign......................................... -- 49 (218)
------- ------- --------
28,975 46,746 49,664
------- ------- --------
Deferred:
Federal......................................... (1,015) 765 (10,346)
State........................................... (227) 383 (247)
------- ------- --------
(1,242) 1,148 (10,593)
------- ------- --------
Total............................................. $27,733 $47,894 $39,071
======= ======= ========
</TABLE>
31
<PAGE> 34
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The Company's effective tax rate differed from the statutory tax rate for
the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
FEBRUARY 4, FEBRUARY 3, FEBRUARY 1,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Percent of pretax earnings:
Statutory federal tax rate...................... 35.0% 35.0% 35.0%
Increase:
Goodwill amortization........................... 4.2% 2.4% 49.0%
State income tax, net of federal tax benefit.... 3.4% 3.1% 5.5%
Other............................................. 0.1% 0.4% 1.3%
---- ---- ----
Effective income tax rate......................... 42.7% 40.9% 90.8%
==== ==== ====
</TABLE>
The increase in the Company's effective tax rate for the year ended
February 1, 1997 was due to the effect of the restructuring charge as discussed
in Note 7. The effective rate for the year ended February 1, 1997, excluding the
restructuring charge, would have been 39.5%.
NOTE 13. LEGAL PROCEEDINGS AND SETTLEMENTS
Numerous unrelated manufacturers, distributors, suppliers, importers and
retailers of manufactured L-Tryptophan or products containing manufactured
L-Tryptophan are or were defendants in an estimated 2,000 actions brought in
federal and state courts seeking compensatory and, in some cases, punitive
damages for alleged personal injuries resulting from the ingestion of certain
products containing manufactured L-Tryptophan. Currently, at least one of the
GNC Companies (the Company or one of its subsidiaries) is named in approximately
10 of these actions and the possibility of future such actions cannot be
excluded. The GNC Companies are defending these actions vigorously and believe
that they will be entitled to indemnification from Showa Denko America, Inc.
("SDA") and its parent, Showa Denko, K.K. ("SDK"), the Japanese manufacturer of
the bulk L-Tryptophan which the plaintiffs allege caused their personal
injuries. In August 1990, GNI entered into a joint defense agreement with SDA,
which agreement was amended and restated in October 1992. Unlike the original
joint defense agreement which was terminable at will by either party, the
amended and restated joint defense agreement (the "Agreement") is terminable
only under limited, specified circumstances. Under the Agreement, SDA has agreed
to pay all legal fees incurred and indemnify the GNC Companies against liability
in any claim if it is determined that a proximate cause of the injury sustained
by the plaintiff was a constituent of the raw material sold by SDA to the GNC
Companies or was a factor for which SDA or any of its affiliates was
responsible, except to the extent that actions by the GNC Companies proximately
contributed to the injury. As previously stated, one or more of the GNC
Companies is presently named in approximately 10 actions arising out of the
ingestion of L-Tryptophan. That number is down from a high in excess of 400. The
decrease is attributable to SDA's settlement of L-Tryptophan claims, all such
settlements having been accomplished by SDA without any financial contribution
from the GNC Companies. The GNC Companies believe that, under the Agreement,
they will be entitled to indemnification in all actions arising out of the
ingestion of products containing L-Tryptophan manufactured by SDK and that
contribution by the GNC Companies will not be warranted. In each of the
remaining cases in which a claimant is able to identify, by lot number, the
L-Tryptophan ingested, such identification has implicated L-Tryptophan
manufactured by SDK. Under the Agreement, the GNC Companies must refrain from
bringing cross-claims against or joining SDA or SDK. The Company believes that
SDA can only meet its obligations under the Agreement with the financial support
of SDK and pursuant to the Agreement, SDK has provided in a separate agreement,
an unconditional and irrevocable guaranty of all the performance and payment
obligations of SDA under the Agreement.
The Agreement does not cover damages caused by the GNC Companies'
intentional misconduct or awards of punitive damages or multiple damages arising
out of such intentional misconduct or civil or criminal
32
<PAGE> 35
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
penalties arising out of violations of law if any such damages or penalties were
to be awarded against the GNC Companies. The GNC Companies believe that they
have reasonable defenses against such damages or penalties. In support of their
claims for compensatory and, in some cases, punitive damages, various plaintiffs
have alleged, among other things, violations of the Federal Food, Drug, and
Cosmetic Act ("FDCA"). If proven to have been a proximate cause of a plaintiff's
damages, violations of the FDCA by the GNC Companies could preclude the GNC
Companies from obtaining full indemnification. The GNC Companies do not believe
they violated the FDCA. In addition, they believe that there are reasonable
grounds upon which to defend against allegations that, if any such violations
occurred, such violations proximately caused a plaintiff's damages. The GNC
Companies further believe that they should be entitled to indemnification or
contribution from some of the other suppliers or distributors in certain
actions, but are not pursuing those claims at this time.
The GNC Companies have product liability insurance which they believe
provides coverage for L-Tryptophan products subject to these claims, including
legal defense costs. However, the potential damages that could be recovered in
pending L-Tryptophan actions (in the unlikely event that such potential damages
would be awarded solely against the GNC Companies and ignoring the existence of
the Agreement, the guaranty by SDK, and claims for indemnification and
contribution) could exceed the GNC Companies' available product liability
insurance coverage, and such excess could have a material impact upon the
Company's results of operations. Although it is not possible to predict with
certainty the ultimate outcome of these actions, assuming the continued
existence of the Agreement and guaranty, the performance of SDA and SDK of their
respective responsibilities thereunder, and the absence of punitive damage
awards, management of the Company, after consultation with counsel, believes
that the Company will not be required to make any material payments in
connection with the resolution of the remaining L-Tryptophan actions and claims.
No provision has been made in the financial statements for any loss that may
result to the Company as a result of these actions.
On June 24, 1996, an action was commenced against the Company in the Court
of Chancery of the State of Delaware entitled LaValla v. Thomas H. Lee et al.,
Civil Action No. 15080. Plaintiff asserts that the Company is liable for a
violation of Section 11 of the Securities Act of 1933, arising out of allegedly
false and misleading statements in the Prospectus and Registration Statement for
a public offering of common stock of the Company which took place on February 7,
1996. Plaintiff also alleges that two directors and shareholders of the Company,
Thomas H. Lee (a director at the time of the offering) and Thomas R. Shepherd,
are liable for a violation of Section 11 of the Securities Act of 1933, arising
out of the same allegedly false and misleading statements in the Prospectus and
Registration Statement. Plaintiff seeks certification of the action as a class
action, purportedly on behalf of all persons other than defendants who purchased
shares of the Company's common stock during the public offering. The Company
disputes the allegations contained in the complaint and intends to defend the
action vigorously. The LaValla case has been stayed in court pending resolution
of the Klein case summarized below.
On August 2, 1996, an action was commenced against the Company in the
United States District Court for the Western District of Pennsylvania entitled
Klein et al. v. General Nutrition Companies, Inc. et al., Civil Action No.
96-1455. Plaintiffs assert that the Company is liable for violations of Sections
11 and 12(a)(2) of the Securities Act of 1933 and Section 1-501(a) of the
Pennsylvania Securities Act, arising out of allegedly false and misleading
statements in the Prospectus and Registration Statement for a public offering of
common stock of the Company which took place on February 7, 1996, and for
violations of Section 10(b) of the Securities Exchange Act of 1934 and for
negligent misrepresentation arising out of allegedly false and misleading public
statements during the period from the public offering through May 28, 1996.
Plaintiffs also allege that certain officers, directors and shareholders of the
Company, as well as the underwriters for the public offering, are liable for
other violations of the federal and state securities laws and for negligent
misrepresentation. Plaintiffs seek certification of the action as a class
action, purportedly on behalf of all persons other than defendants who purchased
shares of the Company's common stock during the proposed
33
<PAGE> 36
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
class period from February 7 through May 28, 1996. The Company disputes the
allegations contained in the complaint and intends to defend the action
vigorously.
The Company is presently engaged in various other legal actions and
governmental proceedings, and, although ultimate liability cannot be determined
at the present time, the Company is currently of the opinion that the amount of
any such liability from these other actions and proceedings when taking into
consideration the Company's product liability coverage, will not have a material
adverse impact on its financial position, results of operations or liquidity.
The Company, like other retailers, distributors and manufacturers of
products that are ingested, faces an inherent risk of exposure to product
liability claims in the event that, among other things, the use of its products
results in injury. With respect to product liability coverage the Company
currently has a $1 million self-insured retention per occurrence and aggregate
followed by a primary products liability policy of $1 million per occurrence and
aggregate, followed by an additional $2 million self-insured retention per
occurrence and aggregate, and an additional $80 million of umbrella liability
insurance coverage. There can be no assurance that such insurance will continue
to be available at a reasonable cost, or if available will be adequate to cover
liabilities.
NOTE 14. BUSINESS COMBINATIONS
On August 17, 1996, the Company and its subsidiaries, General Nutrition,
Incorporated and NF Acquisition Corporation entered into an Agreement and Plan
of Merger with Nature's Fresh Northwest, Inc., a 6 store natural gourmet food
grocery chain located in the Portland, Oregon area. The Company purchased 100%
of the outstanding common stock of Nature's Fresh Northwest, Inc. for a
combination of cash and the Company's common stock totaling $17 million. The
Company acquired $7.2 million in assets and assumed $7.0 million in liabilities
in connection with the merger. The Company has accounted for this acquisition
utilizing the purchase method of accounting, resulting in the recognition of
$16.9 million of goodwill. The operations of Nature's Fresh Northwest are
immaterial to the Company.
On November 6, 1995, the Company and its subsidiaries, General Nutrition
Investment Company and GNC (U.K.) Holding Company, entered into an agreement
with the United Kingdom based Health and Diet Group Limited, pursuant to which
the Acquisition Subsidiary purchased 100% of the outstanding common stock of
Health and Diet Group Limited for a combination of cash and the Company's common
stock totaling $7.1 million. The Company has accounted for this acquisition
utilizing the purchase method of accounting, resulting in the recognition of
$5.0 million of goodwill. The operations of Health and Diet are immaterial to
the Company.
On July 25, 1994, the Company and its subsidiaries, General Nutrition
Corporation and GN Acquisition Corp., entered into an Agreement and Plan of
Merger with Nature Food Centres, Inc. ("NFC"), pursuant to which the Merger
Subsidiary purchased all of the outstanding common stock for $12 net per share
in cash or a total of approximately $61 million. In conjunction with the
acquisition, $42.2 million in assets were acquired and $38.6 million in
liabilities were assumed. NFC was a leading regional specialty retailer of
nutritional supplements, natural food and personal care products. Approximately
90% of the outstanding common stock of NFC was purchased on August 26, 1994. The
remaining stock was purchased through a merger which occurred on September 20,
1994. The Company accounted for this acquisition utilizing the purchase
accounting method.
Additionally, in 1994, 1995 and 1996 the Company acquired 26, 81 and 68
stores, respectively, through purchases from independent store owners and
Company franchisees. These acquisitions are accounted for utilizing the purchase
accounting method. As a result of these transactions, goodwill of $3.9 million,
$7.9 million and $8.1 million in 1994, 1995 and 1996, respectively, was
recognized in the consolidated financial statements.
34
<PAGE> 37
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 15. SEGMENT INFORMATION
The following table represents key financial information of the Company's
business segments; Retail, Franchising, and Manufacturing and should be read in
conjunction with Part I, Item 1, Business.
<TABLE>
<CAPTION>
1994 1995 1996
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
RETAIL
Net revenue........................................................... $ 512,591 $652,185 $726,758
Operating earnings.................................................... 76,627 104,495 18,816
Depreciation/amortization............................................. 22,005 28,417 33,924
Identifiable assets................................................... 511,607 538,847 584,979
Capital expenditures.................................................. 49,192 46,215 59,699
MANUFACTURING
Net revenue:
Intersegment sales.................................................. 87,756 130,375 163,924
Third-party sales................................................... 57,316 46,146 75,791
Operating earnings.................................................... 23,579 28,062 37,716
Depreciation/amortization............................................. 2,024 2,782 3,631
Identifiable assets................................................... 51,146 66,037 89,154
Capital expenditures.................................................. 6,471 11,618 13,058
FRANCHISING
Net revenue........................................................... 103,008 147,621 188,296
Operating earnings.................................................... 17,117 28,281 40,714
Depreciation.......................................................... 98 177 201
Identifiable assets................................................... 52,751 63,767 86,674
Capital expenditures.................................................. 485 90 561
CORPORATE/OTHER
Net revenue........................................................... 30 -- --
Operating expense..................................................... (19,573) (23,722) (36,899)
Depreciation/amortization............................................. 723 820 2,777
Identifiable assets................................................... 11,067 14,200 18,548
Capital expenditures.................................................. 487 1,385 1,942
CONSOLIDATED
Net revenue........................................................... 672,945 845,952 990,845
Operating earnings.................................................... 97,750 137,116 60,347
Interest net.......................................................... 19,669 20,076 17,341
Income before income taxes............................................ 78,081 117,040 43,006
Income taxes.......................................................... 32,337 47,894 39,071
Extraordinary loss from early retirement of debt (net of taxes)....... 8,550 -- --
Net earnings.......................................................... 37,194 69,146 3,935
Identifiable assets................................................... 626,571 682,851 779,355
Depreciation/amortization............................................. 24,850 32,196 40,533
Capital expenditures.................................................. 56,635 59,308 75,260
</TABLE>
- ---------
(a) Retail operating income includes expenses for amortization of goodwill of
$8.0 million in 1994, $8.5 million in 1995, and $9.4 million in 1996. Retail
identifiable assets includes goodwill, net of accumulated amortization, of
$294.0 million in 1994, $290.5 million in 1995 and $258.9 million in 1996.
Retail capital expenditures includes $18.1 million in assets added for the
NFC acquisition in 1994, $1.1 million in assets added for the acquisition of
Health and Diet Group Limited in 1995, and $4.4 million in assets added for
the acquisition of Nature's Fresh Northwest, Inc. in 1996.
(b) Intersegment sales are made at established transfer prices.
(c) 1996 operating earnings include $80.2 million of restructuring charges, of
which $79.5 million is recorded in Retail, $497,000 in Manufacturing, and
$280,000 in Corporate/Other.
(d) Included in Corporate/Other operating earnings in 1994, 1995, and 1996 is
$675,000, $1.6 million, and $11.8 million, respectively, of non-cash
compensation expense charges.
35
<PAGE> 38
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 16. QUARTERLY FINANCIAL DATA
Unaudited quarterly financial information is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------ YEAR ENDED
APRIL 27, JULY 20, OCTOBER 12, FEBRUARY 1, FEBRUARY 1,
1996(A) 1996 1996 1996 1997 1997
--------- -------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenue............. $ 230,167 $217,750 $ 226,622 $ 316,306 $990,845
Gross profit............ 88,835 81,098 86,899 119,138 375,970
Net earnings............ 20,178 (51,879) 17,870 17,766 3,935
Per share of common
stock:
Primary net
earnings........... 0.22 (0.60) 0.21 0.21 0.05
Fully diluted net
earnings........... 0.22 (0.60) 0.21 0.21 0.05
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------- YEAR ENDED
APRIL 29, JULY 22, OCTOBER 14, FEBRUARY 3, FEBRUARY 3,
1995(A) 1995 1995 1995 1996 1996
--------- -------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenue............. $ 192,002 194,410 193,546 265,994 845,952
Gross profit............ 75,943 75,545 75,196 99,848 326,532
Net earnings............ 15,101 15,147 15,889 23,009 69,146
Per share of common
stock:
Primary net
earnings........... 0.19 0.19 0.18 0.25 0.81
Fully diluted net
earnings........... 0.18 0.18 0.18 0.25 0.78
</TABLE>
- ---------
(a) Each of the Company's first 3 quarters consists of 12 weeks operating
results. The fourth quarter consists of 16 weeks.
NOTE 17. STOCK-BASED COMPENSATION PLANS
The Company sponsors multiple stock-based compensation plans including both
stock option and stock purchase plans. Had compensation cost for the Company's
plans been determined based on the fair value at the grant date instead of the
intrinsic value method described in Note 1 for awards in 1995 and 1996, the
Company's net earnings and earnings per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
FEBRUARY 3, FEBRUARY 1,
1996 1997
----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net Income...................... As reported $69,146 $ 3,935
Pro forma 65,700 (11,528)
Primary earnings per share...... As reported $ 0.81 $ 0.05
Pro forma 0.77 (0.14)
Fully diluted earnings per
share......................... As reported $ 0.78 $ 0.05
Pro forma 0.73 (0.14)
</TABLE>
For options granted after February 4, 1995, the fair value of each option
has been estimated on the date of grant using the Black-Scholes options pricing
model with the following weighted average assumptions for the fiscal years ended
February 3, 1996 and February 1, 1997: expected volatility of 52% in 1995 and
53% in 1996;
36
<PAGE> 39
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
no dividend yield in both years; expected life in years from 1 to 5 years in
1995 and 1 to 6 years in 1996; and risk-free interest rates of 5.5% in 1995 and
6% in 1996.
The Company recorded compensation expense of $675,000, $1.6 million and
$7.5 million related to its fixed and performance-based stock option plans for
years ended February 4, 1995, February 3, 1996, and February 1, 1997,
respectively.
All of the Company's Stock Option Plans are administered by the
Compensation Committee of the Company's Board of Directors.
STOCK OPTION PLANS
FIXED STOCK OPTION PLANS
The Company has seven fixed stock option plans covering officers and key
employees, and non-employee directors. A summary of each plan at February 1,
1997 is as follows:
<TABLE>
<CAPTION>
RANGE OF
SHARES MAXIMUM EXERCISE SHARES
AUTHORIZED OPTION LIFE PRICES OUTSTANDING VESTING PROVISIONS
-------------- ----------- ------------- -------------- ----------------------
(IN THOUSANDS) (IN YEARS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
EMPLOYEE PLANS:
1989................... 2,173 10 $1.25 - $ 2.50 164 100% at grant
1991................... 1,600 10 1.25 602 100% at grant
1992................... 400 10 6.53 - 15.50 346 5 years, 20% per year
1993................... 1,600 10 10.84 - 21.16 1,334 4 years, daily basis
1995................... 2,000 10 11.88 - 25.38 1,653 100% at grant date
15.50 - 19.50 75 4 years, daily basis
1996................... 2,500 10 15.50 - 18.60 1,491 4 years, daily basis
NON-EMPLOYEE PLANS:
1994-directors......... 100 10 11.47 - 22.75 80 4 years, 25% per year
</TABLE>
A summary of the status of the Company's fixed stock option plans for the
years ended February 4, 1995, February 3, 1996 and February 1, 1997 is as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------------------------- ----------------------------- -----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE PRICE EXERCISE PRICE EXERCISE PRICE
FIXED STOCK OPTIONS SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE
- -------------------------------------------- -------------- -------------- -------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year........................ 4,789 $ 5.12 3,952 $ 6.15 4,774 $ 9.30
Granted....................... 243 7.76 1,898 12.73 1,715 16.36
Exercised..................... (920) 1.30 (1,032) 2.88 (743) 6.05
Forfeited..................... (160) 5.43 (44) 6.70 (1) 2.50
----- ----- -----
Outstanding at end of year.... 3,952 $ 6.15 4,774 $ 9.30 5,745 $11.71
===== ===== =====
Options exercisable at year
end......................... 2,626 3,957 3,840
===== ===== =====
Weighted average fair value of
options granted during the
year:
Exercise price = Grant date
fair value................ $ 3.09 $ 8.17
Exercise price < Grant date
fair value................ $19.97 $10.42
Exercise price > Grant date
fair value................ $ -- $ 8.81
</TABLE>
37
<PAGE> 40
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The following table summarizes information regarding the Company's fixed
stock options outstanding at February 1, 1997:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS OPTIONS EXERCISABLE
---------------------------------------------------- --------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE PRICE NUMBER EXERCISE PRICE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PER SHARE EXERCISABLE PER SHARE
- ----------------- -------------- ---------------- -------------- -------------- --------------
(IN THOUSANDS) (IN YEARS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
$
$ 1.25 - 2.50... 766 5.78 $ 1.25 766 $ 1.25
6.53 - 10.84.. 1,550 6.58 10.71 1,194 10.76
11.44 - 13.62.. 1,623 8.01 11.96 1,560 11.93
15.00 - 16.88.. 1,242 9.57 15.55 130 15.50
18.60 - 19.50.. 453 9.59 18.82 104 19.30
21.16 - 25.38.. 111 8.69 22.36 86 22.33
1.25 - 25.38.. 5,745 7.80 $11.71 3,840 $ 9.99
</TABLE>
PERFORMANCE-BASED STOCK OPTION PLANS
The Company currently has two performance-based plans covering both
employees and non-employees.
Under the 1996 Stock Option Plan, the Company is authorized to grant stock
options to selected officers and key employees. Options vest at the rate of 25%
per year over a four year period commencing on the date of grant, provided that
the market price per share of the Company's common stock achieves specified
levels of appreciation during such four year period. Under the plan, such
appreciation must equal or exceed 20% in each year commencing with the date of
grant of each option. No more than 25% of the shares available for issuance can
vest in any one year. If in a given year the market price per share of the
Company's common stock fails to achieve the specified level, the shares which
fail to vest in that year may vest in a subsequent year within such four year
period commencing on the date of grant, assuming that the market price per share
of common stock achieves in such subsequent year the level which was not met in
a previous year. If an option whose vesting is dependent upon the achievement of
specified levels of stock price appreciation has not been fully vested by the
close of the four year period commencing on the date of grant, such option shall
be exercisable for a thirty day period commencing with the close of such four
year period and thereafter shall terminate to the extent not exercised.
A summary of the Company's performance-based stock option plans is as
follows:
<TABLE>
<CAPTION>
SHARES MAXIMUM RANGE OF SHARES
AUTHORIZED OPTION LIFE EXERCISE PRICES OUTSTANDING
-------------- ----------- --------------- --------------
(IN THOUSANDS) (IN YEARS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Plans:
1996............................. 2,500 10 $15.50 - $18.60 1,491
Other............................ 125 5 16.88 125
</TABLE>
38
<PAGE> 41
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
A summary of the status of the Company's performance stock option plans as
of February 1, 1997 is presented below:
<TABLE>
<CAPTION>
1996
--------------------------------
WEIGHTED
AVERAGE
PERFORMANCE-BASED STOCK OPTIONS SHARES EXERCISE PRICE
- -------------------------------------------------------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Outstanding at beginning of year.............................. -- $ --
Granted....................................................... 1,616 16.28
Exercised..................................................... -- --
Forfeited..................................................... -- --
-----
Outstanding at end of year 1,616 $16.28
=====
Weighted average fair value of options granted during the
year:
Exercise price < Grant date fair value...................... $10.74
Exercise price > Grant date fair value...................... $ 9.84
</TABLE>
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
---------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED WEIGHTED ------------------------------
AVERAGE AVERAGE WEIGHTED
RANGE OF EXERCISE NUMBER REMAINING EXERCISE NUMBER AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE EXERCISE PRICE
- ----------------- -------------- ---------------- -------- ------------ --------------
(IN THOUSANDS) (IN YEARS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
$15.50 - $15.50 1,105 9.55 $15.50 276 $15.50
16.88 180 6.46 16.88 -- --
18.60 331 9.78 18.60 -- --
15.50 - 18.60 1,616 9.26 $16.29 276 $15.50
</TABLE>
STOCK PURCHASE PLANS
EMPLOYEE STOCK PURCHASE PLAN
The Company sponsors an Employee Stock Purchase Plan (ESPP) under which it
is authorized to issue up to 2.0 million shares of common stock to all employees
with a minimum of three months of service. The ESPP allows eligible employees to
contribute through payroll deductions up to 10% of their annual salary toward
stock purchases. Stock purchases are made monthly on the first day of each month
at 90% of the closing price from the previous day.
1996 MANAGEMENT STOCK PURCHASE PLAN
On October 25, 1996, the Company's shareholders approved the adoption of
the Company's 1996 Long Term Incentive Program which included the 1996
Management and Director Stock Purchase Plan (the "Stock Purchase Plan"). Under
the Stock Purchase Plan, the Company has established a minimum stockholding
requirement for members of senior management. In order to participate in the
Stock Purchase Plan, all officers of the Company must own Company stock with a
market value equal to at least one times their annual salary, or 50% for other
non-officer participants.
Participants are permitted to purchase shares of the Company's common stock
at a price equal to 80% of the average market price of the common stock during
certain specified periods. The Company recognizes compensation expense in the
periods in which shares are purchased under the Stock Purchase Plan in the
amount by which the fair market value per share of the Company's common stock at
the time of such purchase exceeds the exercise price per share under the plan.
The maximum number of shares which
39
<PAGE> 42
GENERAL NUTRITION COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
participants are permitted to purchase under the Plan is twice their annual
compensation or director fees. Non-officer participants may participate to one
times their annual compensation. The Company may extend loans to participants
for up to 50% of the amount necessary to purchase the shares under the Plan and
the applicable withholding tax, provided that no participant shall borrow more
than an amount equal to such participant's annual base salary. Any such loans
bear interest at 6% per annum and are secured by the common stock purchased by
the participant. The Company will forgive the loan in the event the market price
of the Company's common stock appreciates by at least 25% or more over the base
market price of the common stock in each of the four years commencing from the
date of grant of such loan. The Company will record compensation expense for the
amount of loans forgiven in each fiscal year in which stock appreciation hurdles
are attained. To the extent that such loans are not forgiven, they are required
to be repaid at the earlier of termination of employment or expiration of the
four year period.
Under the Stock Purchase Plan, a total of 1.0 million shares have been
reserved for issuance. As of February 1, 1997, 535,028 shares were purchased
under the Stock Purchase Plan for approximately $6.7 million, 80% of the average
market price of the common stock. At February 1, 1997, outstanding Company loans
made in connection with the plan were $3.3 million. The Company recorded $3.4
million in compensation expense for the year ended February 1, 1997 in
connection with the discount from the market price of the common stock.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
40
<PAGE> 43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item concerning directors is incorporated
by reference to the section entitled "Election of Directors" in the Company's
definitive Proxy statement for its Annual Meeting of Stockholders to be held
June 26, 1997 and by reference to Part I of this Annual Report on Form 10-K.
There is incorporated herein by reference to the Company's definitive Proxy
Statement for its Annual Meeting of Stockholders to be held June 26, 1997, the
information with the respect to compliance with Section 16(a) of the Securities
and Exchange Act of 1934.
Information concerning the executive officers of the Company, who are
elected by the board of directors and serve at their discretion, is as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------- ---- --------------------------------------------------------
<S> <C> <C>
Jerry D. Horn 59 Chairman of the Board and Director
William E. Watts 44 President, Chief Executive Officer, and Director
Louis Mancini 51 President of General Nutrition Corporation
Edwin J. Kozlowski 48 Executive Vice President, Chief Financial Officer &
Treasurer
John A. DiCecco 44 Senior Vice President-Logistics/Manufacturing of GNI
James M. Sander 40 Vice President-Law, Chief Legal Officer and Secretary
Curtis J. Larrimer 41 Vice President-Controller
David R. Heilman 44 Vice President-Strategic Planning & Corp. Development
Gregory T. Horn 31 Chief Marketing Officer of GNCI, Senior Vice President
of General Nutrition Corporation
Thomas R. Shepherd 67 Director
W. Harrison Wellford 56 Director
Ronald L. Rossetti 53 Director
David Lucas 49 Director
</TABLE>
Mr. Jerry Horn has served as Chairman of the Board of GNCI since October
1991, and as Chairman of the Board of GNI since November 1985. Mr. Horn served
as Chief Executive Officer of GNI from May 1985 to December 1990 and also served
as President of GNI from May 1985 to September 1988. Mr. Horn is also a director
of CT Farm & Country, Inc., Cinnabon Inc. From April 1983, Mr. Horn was
President and from April 1994 to May 1995, he was Chief Executive Officer of
Thousand Trails, Inc. From September 1979 to April 1983, he was President and
Chief Executive Officer of Recreational Equipment, Inc.
Mr. Watts has served as a director of GNCI since October 1991, and as a
director of GNI since January 1986. Mr. Watts has served as President and Chief
Executive Officer of GNCI since October 1991, as President of GNI since
September 1988 and as Chief Executive Officer of GNI since December 1990. He
served as Senior Vice President of GNI from January 1988 to September 1988 and
previously he served as Senior Vice President-Retailing of GNI between August
1985 and January 1988. Mr. Watts was Vice President-Retail Operations of GNC
from February 1984 to August 1985 and prior thereto served as Director of Retail
Operations.
Mr. Mancini has served as President of GNC since February 1996. He served
as Senior Vice President and General Manager of GNC from September 1988 to
February 1996. He served as Divisional Vice President of GNC from October 1986
to September 1988, as Division Manager of GNC from June 1985 to October 1986,
and as Regional Sales Manager of GNC from July 1984 to June 1985. Prior to July
1984, Mr. Mancini had served in various positions with GNC.
Mr. Kozlowski became Executive Vice President of GNCI and GNI in February
1996 and he served as Chief Financial Officer and Treasurer since October 1991.
He became Chief Financial Officer of both
41
<PAGE> 44
Companies in February 1990 and has served as Senior Vice President of both
Companies since August 1991 and served as Controller of GNI from February 1987
until February 1993 and as Treasurer of GNI since October 1989 and as Vice
President since June 1989. He served as Assistant Controller from April 1985 to
February 1987. Prior to April 1985, Mr. Kozlowski was Director of Accounting,
Budgets and Taxes of GNI.
Mr. DiCecco became Senior Vice President of Logistics/Manufacturing of GNI
in October 1990. He served as Vice President of Distribution and Procurement of
GNC from February 1988 to September 1990, and as Director of Distribution of GNI
from July 1985 to January 1988, and as Manager of Distribution from July 1981 to
June 1985. Mr. DiCecco joined GNI in October 1978 as an Industrial Engineer.
Mr. Sander became Vice President-Law, Chief Legal Officer and Secretary of
GNCI and its subsidiaries in February 1993. Mr. Sander began his employment with
GNI in October 1988 as Assistant General Counsel and became Assistant Secretary
in June 1989. From December 1985 to October 1988, Mr. Sander was Assistant Vice
President and Counsel of Equimark Corporation, a bank holding Company. From
October 1983 until December 1985, Mr. Sander was an attorney with the law firm
Meyer Unkovic & Scott.
Mr. Larrimer became Vice President-Controller of the Company in February
1995. Mr. Larrimer began his employment with GNI in the Budgets and Tax
Department in 1980 and has held various positions of increasing responsibility
within the Company including Controller of the Manufacturing and Retail
divisions and Assistant Corporate Controller.
Mr. Heilman joined the Company in December 1994 and became the Vice
President of Strategic Planning and Corporate Development of the Company in
February 1995. Prior to joining the Company, Mr. Heilman was a consultant with
the Meridian Group, a private investment banking concern. From January 1990 to
December 1993, Mr. Heilman served as the President of First Westinghouse Capital
Corporation, a subsidiary of Westinghouse Financial Services. Prior to 1990 he
served as a Vice President for Westinghouse in a variety of capacities.
Mr. Gregory Horn became Chief Marketing Officer in January 1997 and has
served as Senior Vice President-Retail Sales and Marketing of GNC since
February, 1996. He served as Vice President-Retail Sales of GNC from February,
1995 to February 1996 and was previously Divisional Vice President of GNC from
April, 1994 to February 1995. Mr. Horn joined GNC in June 1991 and served in
various positions with GNC.
Mr. Shepherd has served as a director of the Company since October 1991,
and as a director of GNI since October 1989. He has been engaged as a consultant
to Thomas H. Lee Company since 1986 and is currently a Managing Director. He is
also a Director of Duro-Test Corporation, Health o meter Products, Inc., Anchor
Advanced Products, Inc., Sneaker Stadium, Inc., Computer Assisted Marketing,
Inc., and PNC New England. He is Executive Vice President of Thomas H. Lee
Advisors I and T.H. Lee Mezzanine II. Previously Mr. Shepherd was Chairman of
Amerace Corporation from 1986 to 1988. He was Executive Vice President of GTE
(Sylvania) Lighting Products Group from 1983 to 1986, President of North
American Phillips Commercial Electronics Corporation from 1981 to 1983 and
Senior Vice President and General Manager of GTE (Sylvania) Entertainment
Products Group from 1979 to 1981.
Mr. Wellford has served as a director of the Company and GNI since January
1994. Since November 1991, Mr. Wellford has been a partner in the Washington,
D.C. office of the law firm of Latham & Watkins where he is chair of the firm's
International Practice Group. He is a Director of Sithe Energies, USA and is a
Founder of the National Independent Energy Producers. He serves as Corporate
Secretary and General Counsel to the Western N's Enterprise Fund and is
Vice-Chairman of the Friends of Art in Embassies. Mr. Wellford was a partner at
the law firm of Olwine, Chase, O'Donnell & Weyher from 1989 through 1991; and
prior to that time period, he was a partner at the law firm of Wellford, Wegman
and Hoff from 1981 through 1988. In addition, Mr. Wellford was Executive
Director of the White House--Office of Management and Budget and Executive
Director of the President's Reorganization Project from 1977 to 1981. Mr.
Wellford also served as a White House transition advisor to Presidents-elect
Carter and Clinton.
Mr. Rossetti has served as a director of the Company and of GNI since
September 1994. He is currently a private investor and a consultant regarding
emerging growth companies. From 1976 through September 1994,
42
<PAGE> 45
Mr. Rossetti was President, Chief Executive Officer and a director of Nature
Food Centres, Inc., which was acquired by the Company in 1994.
Mr. Lucas has served as a director of the Company and GNI since July 1996.
Mr. Lucas received a B.S. in Industrial Management at Purdue University in 1969.
He also received an MBA in Marketing from Harvard Business School in 1971. In
1983 to 1984 he was employed as President for Margos in Dallas, TX. Mr. Lucas
has been employed by Bonita Bay Properties, Inc., since 1984 and currently holds
a position as Chairman.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Section entitled "Executive Compensation" in the Company's definitive Proxy
Statement for its Annual Meeting of Stockholders to be held June 26, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Sections entitled "Ownership of Stock by Directors, Nominees for Directors,
Executive Officers and Certain Beneficial Owners" in the Company's definitive
Proxy Statement for its Annual Meeting of Stockholders to be held June 26, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Section entitled "Certain Relationships and Related Transactions" in the
Company's definitive Proxy Statement for its Annual Meeting of Stockholders to
be held June 26, 1997.
43
<PAGE> 46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
Independent Auditors' Report
Consolidated Balance Sheets for the years ended February 3, 1996 and
February 1, 1997
Consolidated Statements of Operations for fiscal years ended February 4,
1995, February 3, 1996 and February 1, 1997
Consolidated Statements of Shareholders' Equity for years ended February
4, 1995, February 3, 1996 and February 1, 1997
Consolidated Statements of Cash Flows for years ended February 4, 1995,
February 3, 1996 and February 1, 1997
Notes to Consolidated Financial Statements
Supplementary Financial Data:
Selected Quarterly Financial Data (unaudited) for the fiscal years ended
February 1, 1997 and
February 3, 1996.
All Schedules are omitted because they are not applicable or the required
information is included herein.
(b) There have been no reports filed on Form 8-K during the last quarter of the
period covered by this report. (c) Listing of Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<C> <S>
3.1 Articles of Incorporation of General Nutrition, Incorporated, as amended.
(Incorporated herein by reference to Exhibit 3.1 to the Annual Report on Form 10-K
of General Nutrition, Incorporated for the fiscal year ended February 1, 1992,
File No. 1-8055.)
3.2 By-laws of General Nutrition, Incorporated, as amended. (Incorporated herein by
reference to Exhibit 3.2 to the Annual Report on Form 10-K of General Nutrition,
Incorporated for the fiscal year ended February 3, 1990, File No. 1-8055.)
3.3 Articles of Incorporation of General Nutrition Corporation, as amended.
(Incorporated herein by reference to Exhibit 3.5 to the General Nutrition,
Incorporated, General Nutrition Companies, Inc. (f/k/a Lee-GN Holding Corp.) and
subsidiaries of General Nutrition, Incorporated Registration Statement on Form
S-1, Registration No. 33-31892.)
3.4 By-laws of General Nutrition Corporation, as amended. (Incorporated herein by
reference to Exhibit 3.6 to the General Nutrition, Incorporated, General Nutrition
Companies, Inc. (f/k/a Lee-GN Holding Corp.) and subsidiaries of General
Nutrition, Incorporated Registration Statement on Form S-1, Registration No.
33-31892.)
3.5 Restated Certificate of Incorporation of General Nutrition Companies, Inc. (f/k/a
Lee-GN Holding Corp.), filed with the Secretary of the State of Delaware on
October 12, 1995. (Incorporated herein by reference to Exhibit 3.1 to the General
Nutrition Companies, Inc. Registration Statement on Form S-3, Registration
Statement 333-534.)
3.6 By-laws of General Nutrition Companies, Inc. (f/k/a Lee-GN Holding Corp.),
(Incorporated herein by reference to Exhibit 3.13 to the General Nutrition
Companies, Inc. Registration Statement on Form S-1, Registration No. 33-43218.)
4.1 Specimen certificate for shares of common stock. (Incorporated herein by reference
to Exhibit 4.1 to the Annual Report on Form 10-K of General Nutrition,
Incorporated for the fiscal year ended February 6, 1993.)
</TABLE>
44
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<C> <S>
10.3 Employment Agreement between General Nutrition, Incorporated and Jerry D. Horn, as
amended. (Incorporated herein by reference to Exhibit 10.3 to the Annual Report on
Form 10-K of General Nutrition, Incorporated for the fiscal year ended February 6,
1993.)
10.4 Employment Agreement between General Nutrition, Incorporated and William E. Watts.
(Incorporated herein by reference to Exhibit 10.9 to the General Nutrition,
Incorporated and Lee-GN Acquisition Corp. Registration Statement on Form S-4,
Registration No. 33-30223.)
10.12 Amended and Restated Standard Indemnity Agreement dated September 24, 1992 between
General Nutrition, Inc. and all its subsidiaries and Showa Denko America, Inc.
(Incorporated herein by reference to Exhibit 10.13 to the Annual Report on Form
10-K of General Nutrition, Incorporated for the fiscal year ended February 6,
1993.)
10.13 Stockholders Agreement Amendment, Consent and Waiver, effective November 25, 1991,
to the General Nutrition Companies, Inc. (f/k/a Lee-GN Holding Corp.) Stockholders
Agreement, as amended. (Incorporated herein by reference to Exhibit 10.45 to the
General Nutrition Companies, Inc. Registration Statement on Form S-1, Registration
No. 33-43218.)
10.15 Form of General Nutrition Companies, Inc. (f/k/a Lee-GN Holding Corp.) 1991 Stock
Option Plan. (Incorporated herein by reference to Exhibit 10.47 to the General
Nutrition Companies, Inc. Registration Statement on Form S-1, Registration No.
33-43218.)
10.17 General Nutrition Companies, Inc. (f/k/a Lee-GN Holding Corp.) Amended and
Restated 1992 Stock Option Plan. (Incorporated herein by reference to Exhibit
10.17 to the Annual Report and Form 10-K of General Nutrition Companies, Inc. for
the fiscal year ended February 5, 1994.)
*10.18 Fourth Amended and Restated Credit Agreement dated as of March 31, 1997 among
General Nutrition, Incorporated and General Nutrition Corporation, as Borrowers,
Banque Nationale de Paris, New York Branch as Administrative Agent and
Documentation Agent, PNC Bank, National Association and ABNAMRO Bank N.V., as
Syndication Agents, and the Banks named therein.
10.21 Amendment Number 5 to the Employment Agreement between General Nutrition,
Incorporated and Jerry D. Horn, as amended. (Incorporated herein by reference to
Exhibit 10.21 to the Annual Report and Form 10-K of General Nutrition Companies,
Inc. for the fiscal year ended February 5, 1994.)
10.22 Amendment Number 4 and Amendment Number 5 to the Employment Agreement between
General Nutrition, Incorporated and William E. Watts, as amended. (Incorporated
herein by reference to Exhibit 10.22 to the Annual Report and Form 10-K of General
Nutrition Companies, Inc. for the fiscal year ended February 5, 1994.)
10.23 Form of General Nutrition Companies, Inc. 1989 Stock Option Plan. (Incorporated by
reference to Exhibit 4A to the General Nutrition Companies, Inc. Registration
Statement on Form S-8, Registration No. 33-58096.)
10.24 Form of General Nutrition Companies, Inc. 1993 Stock Option Plan. (Incorporated
herein by reference to Exhibit 10.24 to the Annual Report and Form 10-K of General
Nutrition Companies, Inc. for the fiscal year ended February 5, 1994.)
10.25 Form of General Nutrition Companies, Inc. 1993 Employee Stock Purchase Plan.
(Incorporated herein by reference to Exhibit 10.25 to the Annual Report on Form
10-K of General Nutrition Companies, Inc. for the fiscal year ended February 5,
1994.)
10.26 Form of General Nutrition Companies, Inc. 1994 Stock Option Plan for Non-employee
Directors. (Incorporated herein by reference to Exhibit 10.26 to the Annual Report
and Form 10-K of General Nutrition Companies, Inc. for the fiscal year ended
February 4, 1994.)
</TABLE>
45
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<C> <S>
10.27 Amendment Number 6 to the Employment Agreement between General Nutrition,
Incorporated and William E. Watts, as amended. (Incorporated herein by reference
to Exhibit 10.27 to the Annual Report on Form 10-K of General Nutrition Companies,
Inc. for the fiscal year ended February 4, 1995.)
10.28 Form of General Nutrition Companies, Inc. 1995 Stock Option Plan. (Incorporated
herein by reference to Exhibit 10.28 to the Annual Report on Form 10-K of General
Nutrition Companies, Inc. for the fiscal year ended February 4, 1995.)
10.29 Amendment Number 7 to the Employment Agreement between General Nutrition,
Incorporated and William E. Watts, as amended. (Incorporated herein by reference
to Exhibit 10.29 to the Annual Report on Form 10-K of General Nutrition Companies,
Inc. for the fiscal year ended February 3, 1996.
*10.30 Amendment Number 8 to the Employment Agreement between General Nutrition,
Incorporated and William E. Watts, as amended.
*10.31 Amendment Number 6 to the to the Employment Agreement between General Nutrition,
Incorporated and Jerry D. Horn, as amended.
10.32 Form of General Nutrition Companies, Inc. 1996 Management and Director Stock
Option Plan (Incorporated herein by reference to Exhibit 4B to the General
Nutrition Companies, Inc. Registration Statement of Form S-8, Registration No.
333-21397).
10.33 Form of General Nutrition Companies, Inc. 1996 Management and Director Stock
Purchase Plan (Incorporated herein by reference to Exhibit 4A to the General
Nutrition Companies, Inc. Registration Statement on Form S-8, Registration No.
333-21397).
*11.1 Computation of Net Earnings Per Share.
*21.1 Subsidiaries of General Nutrition Companies, Inc.
*23 Consent of Deloitte & Touche LLP.
*27 Financial Data Schedule.
</TABLE>
- ---------
* Filed herewith.
46
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GENERAL NUTRITION COMPANIES, INC.
(Registrant)
May 1, 1997
By: /s/ WILLIAM E. WATTS
------------------------------------
William E. Watts
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ ---------------------------------------- ---------------
<S> <C> <C>
/s/ JERRY D. HORN Chairman of the Board May 1, 1997
- ------------------------------
Jerry D. Horn
/s/ WILLIAM E. WATTS Director, President and Chief Executive May 1, 1997
- ------------------------------ Officer
William E. Watts
/s/ DAVID LUCAS Director May 1, 1997
- ------------------------------
David Lucas
Director
- ------------------------------
Ronald L. Rossetti
/s/ THOMAS R. SHEPHERD Director May 1, 1997
- ------------------------------
Thomas R. Shepherd
/s/ W. HARRISON WELLFORD Director May 1, 1997
- ------------------------------
W. Harrison Wellford
/s/ EDWIN J. KOZLOWSKI Executive Vice President, Chief May 1, 1997
- ------------------------------ Financial Officer, and Principal
Edwin J. Kozlowski Accounting Officer
</TABLE>
47
<PAGE> 1
EXHIBIT 10.18
U.S. $700,000,000
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of March 31, 1997
Among
GENERAL NUTRITION, INCORPORATED and
GENERAL NUTRITION CORPORATION,
as Borrowers,
and
GENERAL NUTRITION COMPANIES, INC.
and
THE RESTATEMENT LENDERS NAMED HEREIN,
as Restatement Lenders,
and
BANQUE NATIONALE DE PARIS,
as Administrative Agent and as Documentation Agent
and as Issuing Bank and as Swing Line Bank
and
PNC BANK, NATIONAL ASSOCIATION and ABN AMRO BANK N.V.
as Syndication Agents
and
THE SUMITOMO BANK, LIMITED, FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, THE FUJI BANK, LIMITED, NEW YORK BRANCH, FLEET NATIONAL
BANK and UNITED STATES NATIONAL BANK OF OREGON
as Co-Agents
<PAGE> 2
T A B L E O F C O N T E N T S
Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms................................... 2
SECTION 1.02. Computation of Time Periods............................. 26
SECTION 1.03. Accounting Terms........................................ 27
SECTION 1.04. Currency Equivalents Generally.......................... 27
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances............................................ 27
SECTION 2.02. Making the Advances..................................... 28
SECTION 2.03. Repayment............................................... 31
SECTION 2.04. Optional Reduction of the Commitments................... 31
SECTION 2.05. Prepayments............................................. 31
SECTION 2.06. Interest................................................ 32
SECTION 2.07. Fees.................................................... 33
SECTION 2.08. Conversion of Advances.................................. 34
SECTION 2.09. Increased Costs, Etc.................................... 34
SECTION 2.10. Payments and Computations............................... 36
SECTION 2.11. Taxes................................................... 37
SECTION 2.12. Sharing of Payments, Etc................................ 39
SECTION 2.13. Letters of Credit....................................... 40
SECTION 2.14. Use of Proceeds......................................... 44
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Fourth Restatement Date......... 44
SECTION 3.02. Conditions Precedent to Each Borrowing and Issuance..... 48
SECTION 3.03. Determinations Under Section 3.01....................... 48
<PAGE> 3
ii
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
<TABLE>
<S> <C> <C>
SECTION 4.01. Representations and Warranties of the Borrowers......... 49
</TABLE>
ARTICLE V
COVENANTS OF THE BORROWERS
<TABLE>
<S> <C> <C>
SECTION 5.01. Affirmative Covenants................................... 55
SECTION 5.02. Negative Covenants...................................... 58
SECTION 5.03. Reporting Requirements to Lenders....................... 68
SECTION 5.04. Financial Covenants..................................... 71
</TABLE>
ARTICLE VI
EVENTS OF DEFAULT
<TABLE>
<S> <C>
SECTION 6.01. Events of Default....................................... 73
SECTION 6.02. Actions in Respect of the Letters of Credit upon Default.76
</TABLE>
ARTICLE VII
THE AGENTS
<TABLE>
<S> <C> <C>
SECTION 7.01. Authorization and Action.................................76
SECTION 7.02. Agents' Reliance, Etc....................................77
SECTION 7.03. Agents, Issuing Bank, Swing Line Bank and Affiliates.....77
SECTION 7.04. Lender Credit Decision...................................78
SECTION 7.05. Indemnification..........................................78
SECTION 7.06. Successor Administrative Agents..........................79
SECTION 7.07. The Agents...............................................80
</TABLE>
ARTICLE VIII
MISCELLANEOUS
<TABLE>
<S> <C> <C>
SECTION 8.01. Amendments, Etc..........................................80
SECTION 8.02. Notices, Etc.............................................80
SECTION 8.03. No Waiver; Remedies......................................81
SECTION 8.04. Costs and Expenses.......................................81
SECTION 8.05. Right of Setoff..........................................82
SECTION 8.06. Binding Effect...........................................83
SECTION 8.07. Assignments and Participations...........................83
</TABLE>
<PAGE> 4
iii
<TABLE>
<S> <C> <C>
SECTION 8.08. Governing Law............................................86
SECTION 8.09. Execution in Counterparts................................86
SECTION 8.10. No Liability of the Issuing Bank.........................86
SECTION 8.11. Confidentiality..........................................87
SECTION 8.12. Jurisdiction, Etc........................................87
SECTION 8.13. Waiver of Jury Trial.....................................88
</TABLE>
SCHEDULES
<TABLE>
<S> <C> <C>
Schedule I - Commitments and Applicable Lending Offices
Schedule II - Assignment of Existing Advances
Schedule 4.01(b) - Subsidiaries
Schedule 4.01(k) - Plans, Multiemployer Plans and Welfare Plans
Schedule 4.01(r) - Environmental Permits
Schedule 4.01(s) - Listings by the Environmental Protection Agency
Schedule 4.01(t) - Hazardous Materials
</TABLE>
<PAGE> 5
iv
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A-1 - Form of Amended and Restated Revolving Credit Note
Exhibit A-2 - Form of Swing Line Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Fourth Amended and Restated Parent Guaranty
Exhibit E - Form of Fourth Amended and Restated Subsidiary Guaranty
Exhibit F - Form of Assignment Agreement
Exhibit G - Form of Intercompany Subordination Agreement
</TABLE>
<PAGE> 6
1
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT dated as of March 31, 1997
among GENERAL NUTRITION, INCORPORATED, a Pennsylvania corporation ("GNI"),
GENERAL NUTRITION CORPORATION, a Pennsylvania corporation ("GNC"), GENERAL
NUTRITION COMPANIES, INC., a Delaware corporation ("GNCI"), the banks and other
lenders (the "Restatement Lenders") listed on the signature pages hereof,
BANQUE NATIONALE DE PARIS ("BNP"), as administrative agent (together with any
successor appointed pursuant to Article VII, the "Administrative Agent") and as
documentation agent (the "Documentation Agent"), for the Lenders hereunder, PNC
Bank, National Association and ABN AMRO Bank N.V., as syndication agents (the
"Syndication Agents"), THE SUMITOMO BANK, LIMITED, FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, THE FUJI BANK, LIMITED, NEW YORK BRANCH, FLEET NATIONAL BANK
and UNITED STATES NATIONAL BANK OF OREGON, as co-agents (the "Co-Agents," and,
together with the Administrative Agent, the Documentation Agent, and the
Syndication Agents, the "Agents") and BNP, as issuing bank (the "Issuing Bank")
and as swing line bank (the "Swing Line Bank").
PRELIMINARY STATEMENTS:
(1) The Restatement Lenders (as defined below) and the Borrowers have
agreed to amend and restate the Existing Credit Agreement (as defined below) in
order to allow the Existing Lenders (as defined below) to assign a portion of
their Commitments to the Restatement Lenders hereunder, and to modify their
Commitments in order to (i) pay transaction fees and expenses in connection
with the transactions contemplated hereunder, (ii) finance capital expenditures
and corporate acquisitions of businesses or product lines in the Health Care
Business (as defined below) and (iii) provide funds for other general corporate
purposes. The Restatement Lenders have indicated their willingness to agree to
amend and restate the Existing Credit Agreement and to lend such amounts on the
terms and conditions of this Agreement.
(2) Simultaneously with the execution hereof, the Existing Lenders have
entered into an Assignment Agreement in the form of Exhibit F attached hereto
dated as of the date hereof (the "Assignment Agreement"), with the Restatement
Lenders pursuant to which such Existing Lenders have agreed to sell and assign
to the Restatement Lenders, and the Restatement Lenders have agreed to purchase
and assume, as of the Fourth Restatement Date, all of such Existing Lenders'
rights and obligations under the Existing Credit Agreement on the terms set
forth in the Assignment Agreement. After giving effect to such sale and
assignment as of the Fourth Restatement Date, the Commitments of and the amount
of Advances owing to each of the Restatement Lenders will be as set forth on
Schedule I.
<PAGE> 7
2
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree
that, subject to the satisfaction of the conditions set forth in Section 3.01,
the Existing Credit Agreement is amended and restated in its entirety to read
as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Advance" means a Revolving Credit Advance, a Letter of Credit Advance or
a Swing Line Advance.
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person or is a director or officer of such Person. For purposes of
this definition, the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") of a Person means the
possession, direct or indirect, of the power to vote 5% or more of the Voting
Stock of such Person or to direct or cause the direction of the management and
policies of such Person, whether through the ownership of Voting Stock, by
contract or otherwise.
"Adjusted Maximum Leverage Ratio" means, with respect to any period, the
ratio of (a) Consolidated Total Adjusted Debt of GNCI and its Subsidiaries at
the end of such period to (b) Consolidated EBITDA of GNCI and its Subsidiaries
for such period (the computation of such ratio to include, in the case of
Indebtedness created, incurred or assumed in connection with any Investment
permitted by Sections 5.02(e)(i), (iv), (v), (vi), (vii) and (ix), the EBITDA
of each such Person in which such Investment was made for the 12-month period,
or such shorter period as appropriate, ended on or immediately prior to the end
of such period).
"Administrative Agent" has the meaning specified in the recital of parties
to this Agreement.
"Administrative Agent's Account" means the account of the Administrative
Agent maintained by the Administrative Agent at the Federal Reserve Bank of New
York, 33 Liberty Street, New York, New York 10048, ABA No. 026007689, for
further credit to Account No. 75042070103, or such other account maintained by
the
<PAGE> 8
3
Administrative Agent and designated by the Administrative Agent in a written
notice to the Lenders and the Borrowers.
"Agents" has the meaning specified in the recital of parties to this
Agreement.
"Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of a Base Rate Advance and such
Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance.
"Applicable Margin" means, as of any date, a percentage per annum
determined by reference to the Performance Level applicable on such date as set
forth below:
<TABLE>
<CAPTION>
Applicable Margin Applicable
Performance for Margin for Letters of
Level Base Rate Eurodollar Rate Credit
Advances Advances
- -------------------- --------------------------- ------------------------- --------------------
<S> <C> <C> <C>
I 0% 0.50% 0.50%
II 0% 0.75% 0.75%
III 0% 1.00% 1.00%
IV 0% 1.25% 1.25%
V 0.25% 1.50% 1.50%
- -------------------- --------------------------- ------------------------- --------------------
</TABLE>
provided, however, that (a) no change in the Applicable Margin shall be
effective until three Business Days after the date on which the Administrative
Agent receives financial statements pursuant to Section 5.03(b) or (c), as the
case may be, demonstrating that a new Performance Level is applicable; (b) for
the period commencing on the Fourth Restatement Date and ending on the date
three Business Days after delivery of financial statements for the Rolling
Period ended on or about April 26, 1997, the Applicable Margin shall be as set
forth opposite Performance Level I; and (c) notwithstanding anything contained
herein to the contrary, the Applicable Margin shall be at Performance Level V
upon the occurrence and during the continuance of an Event of Default.
<PAGE> 9
4
"Applicable Percentage" means, as of any date, a percentage per annum
determined by reference to the Performance Level applicable on such date as set
forth below:
<TABLE>
<CAPTION>
Performance Applicable
Level Percentage
- ------------------------------- -------------------------------
<S> <C>
I 0.175%
II 0.200%
III 0.200%
IV 0.250%
V 0.250%
- ------------------------------- -------------------------------
</TABLE>
provided, however, that (a) no change in the Applicable Percentage shall be
effective until three Business Days after the date on which the Administrative
Agent receives financial statements pursuant to Section 5.03(b) or (c), as the
case may be, demonstrating that a new Performance Level is applicable; (b) for
the period commencing on the Fourth Restatement Date and ending on the date
three Business Days after delivery of financial statements for the Rolling
Period ended on or about April 26, 1997, the Applicable Percentage shall be as
set forth opposite Performance Level I; and (c) notwithstanding anything
contained herein to the contrary, the Applicable Margin shall be at Performance
Level V upon the occurrence and during the continuance of an Event of Default.
"Appropriate Lender" means, as to any Facility, a Lender that has a
Commitment for a portion of such Facility at such time or, as to the Swing Line
Advances, the Swing Line Bank.
"Assignment Agreement" has the meaning specified in the Preliminary
Statements.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an Eligible Assignee, and accepted by the Administrative
Agent, in accordance with Section 8.07 and in substantially the form of Exhibit
C hereto.
"Available Amount" of any Letter of Credit means, at any time, the maximum
amount available to be drawn under such Letter of Credit at such time (assuming
compliance at such time with all conditions to drawing).
<PAGE> 10
5
"Base Rate" means a fluctuating interest rate per annum in effect from
time to time, which rate per annum shall at all times be equal to the higher
of:
(a) the rate of interest advised or designated by BNP in New York,
New York, from time to time, as its prime rate (and such term shall not be
construed to be its best or most favorable rate); and
(b) 1/2 of 1% per annum above the Federal Funds Rate.
"Base Rate Advance" means an Advance that bears interest as provided in
Section 2.06(a)(i).
"BNP" has the meaning specified in the recital of parties to this
Agreement.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any duly authorized committee of such board.
"Borrower" means GNC or GNI, as designated in the applicable Notice of
Borrowing.
"Borrowing" means a Revolving Credit Borrowing or a Swing Line Borrowing.
"Business Day" means a day of the year on which banks are not required or
authorized to close in New York City and, if the applicable Business Day
relates to any Eurodollar Rate Advances, on which dealings are carried on in
the London interbank market.
"Capitalized Leases" has the meaning specified in clause (e) of the
definition of "Indebtedness".
"Cash Equivalents" means any of the following, to the extent owned by the
Borrowers and their Subsidiaries free and clear of all Liens and having a
maturity of not greater than 90 days from the date of acquisition thereof: (a)
readily marketable direct obligations of the Government of the United States or
any agency or instrumentality thereof or obligations unconditionally guaranteed
by the full faith and credit of the Government of the United States; (b)
certificates of deposit of or time deposits with any commercial bank that is
(i) a Lender or (ii) a member of the Federal Reserve System that issues (or the
parent of which issues) commercial paper rated as described in clause (c), that
is organized under the laws of the United States or any State thereof and that
has combined capital and surplus of at least $500,000,000; (c) commercial paper
in an aggregate amount of no more than
<PAGE> 11
6
$250,000 per issuer outstanding at any time, issued by any corporation
organized under the laws of any State of the United States, rated at least
"Prime-1" (or the then equivalent grade) by Moody's Investors Service, Inc. or
"A-1" (or the then equivalent grade) by Standard & Poor's Rating Group, a
division of the McGraw Hill Companies, Inc.; or (d) money market mutual funds
registered under the Investment Company Act of 1940, investing in obligations,
or repurchase agreements secured by obligations, of the type described in
clause (a) or (b).
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980.
"Claims" has the meaning specified in the definition of "Environmental
Action".
"Co-Agent" has the meaning specified in the recital of parties to this
Agreement.
"Commitment" means a Revolving Credit Commitment or a Letter of Credit
Commitment.
"Confidential Information" means information that is furnished to any
Agent or any Lender by or on behalf of the Borrowers on a confidential basis,
but does not include any such information that is or becomes generally
available to the public other than as a result of a breach by such Agent or any
Lender of its obligations hereunder or that is or becomes available to such
Agent or such Lender from a source other than the Borrowers that is not, to the
best of such Agent's or such Lender's knowledge, acting in violation of a
confidentiality agreement with the Borrowers.
"Consolidated" refers to the consolidation of accounts in accordance with
GAAP.
"Conversion", "Convert" and "Converted" each refers to a conversion of
Advances of one Type into Advances of the other Type pursuant to Section 2.08
or 2.09.
"Default" means any Event of Default or any event that would constitute an
Event of Default but for the requirement that notice be given or time elapse or
both.
"Documentation Agent" has the meaning set forth in the recital of parties
to this Agreement.
"Dollars" and "$" sign each means lawful money of the United States.
<PAGE> 12
7
"Domestic Lending Office" means, with respect to any Lender, the office of
such Lender specified as its "Domestic Lending Office" opposite its name on
Schedule I hereto or in the Assignment and Acceptance pursuant to which it
became a Lender, or such other office of such Lender as such Lender may from
time to time specify to the Borrowers and the Administrative Agent.
"EBITA" means, for any period, net income (or net loss) plus the sum of,
without duplication, (a) Interest Expense, (b) income tax expense, (c)
amortization expense, including amortization with respect to deferred financing
fees, (d) losses resulting from any sale of fixed assets, (e) noncash charges
relating to pensions, stock options, stock appreciation rights and other equity
based incentive plans, (f) extraordinary or unusual losses or expenses, in each
case, to the extent such amounts are deducted in calculating net income or loss
and (g) dividends, royalty payments or returns of capital actually received in
cash from any non-wholly-owned Subsidiary or Affiliate less the sum of, without
duplication, (i) gains resulting from any sale of fixed assets, (ii)
extraordinary or unusual gains and (iii) noncash credits relating to pensions,
stock options, stock appreciation rights and other equity based incentive
plans, in each case, to the extent such amounts are included in calculating net
income or loss, in each case determined in accordance with GAAP for such
period; provided, however, that for purposes of calculating Consolidated EBITA,
(x) other than as set forth in clause (g) above, no portion of any
non-wholly-owned Subsidiary's, or any Affiliate's, net income and any
adjustments thereto that under GAAP would be otherwise included in calculating
Consolidated EBITA for any period, shall be taken into account and (y) the net
income and any adjustments thereto of all Foreign Subsidiaries of GNCI shall
not be recognized to the extent such amount exceeds 10% of Consolidated EBITA.
"EBITDA" means, for any period, net income (or net loss) plus the sum of,
without duplication, (a) Interest Expense, (b) income tax expense, (c)
depreciation expense, (d) amortization expense, including amortization with
respect to deferred financing fees, (e) losses resulting from any sale of fixed
assets, (f) noncash charges relating to pensions, stock options, stock
appreciation rights and other equity based incentive plans and (g)
extraordinary or unusual losses or expenses, in each case, to the extent such
amounts are deducted in calculating net income or loss, less the sum of,
without duplication, (i) gains resulting from any sale of fixed assets, (ii)
extraordinary or unusual gains and (iii) noncash credits relating to pensions,
stock options, stock appreciation rights and other equity based incentive
plans, in each case, to the extent such amounts are included in calculating net
income or loss, in each case determined in accordance with GAAP for such
period; provided, however, that for purposes of calculating Consolidated
EBITDA, (x) no portion of any non-wholly-owned Subsidiary's, or any
Affiliate's, net income and any adjustments thereto that are attributable to
interests not owned by GNCI and its Subsidiaries and that under
<PAGE> 13
8
GAAP would be otherwise included in calculating Consolidated EBITDA for any
period, shall be taken into account and (y) the net income and any adjustments
thereto of all Foreign Subsidiaries of GNCI and any other Subsidiary or
Affiliate of GNCI that is organized and with substantially all of its assets
located outside of the United States, shall not be recognized to the extent
such aggregate amount exceeds 10% of Consolidated EBITDA.
"Eligible Assignee" means (a) a commercial bank organized under the laws
of the United States, or any State thereof, and having a combined capital and
surplus of at least $500,000,000, or any Affiliate thereof; (b) a savings and
loan association or savings bank organized under the laws of the United States,
or any State thereof, and having a combined capital and surplus of at least
$500,000,000; (c) a commercial bank organized under the laws of any other
country that is a member of the OECD or has concluded special lending
arrangements with the International Monetary Fund associated with its General
Arrangements to Borrow, or a political subdivision of any such country, and
having a combined capital and surplus of at least $500,000,000, so long as such
bank is acting through a branch or agency located in the United States; (d) the
central bank of any country that is a member of the OECD; (e) a finance
company, insurance company or other financial institution or fund (whether a
corporation, partnership, trust or other entity) that is engaged in making,
purchasing or otherwise investing in commercial loans in the ordinary course of
its business and having a combined capital and surplus of at least $500,000,000
or with respect to a fund with total assets under its management in excess of
$500,000,000; and (f) any other Person (other than an Affiliate of any
Borrower) approved by the Administrative Agent and the Borrowers, such approval
not to be unreasonably withheld.
"Environmental Action" means any administrative, regulatory or judicial
action, suit, demand, demand letter, claim, notice of noncompliance or
violation, investigation, proceeding, consent order or consent agreement
relating in any way to any Environmental Law or any Environmental Permit
(collectively, "Claims") including, without limitation, (a) any Claim by any
governmental or regulatory authority for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any Environmental
Law and (b) any Claim by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting
from Hazardous Materials or arising from alleged injury or threat of injury to
the environment or, to the extent caused by pollution or other environmental
degradation, human health or safety.
"Environmental Law" means any federal, state or local law, statute, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
relating to Hazardous Materials, the environment, or, to the extent related to
pollution or other environmental degradation, human health or safety,
including, without
<PAGE> 14
9
limitation, CERCLA, the Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act, the Clean Water Act, the Toxic Substances Control
Act, the Clean Air Act, the Safe Drinking Water Act, the Atomic Energy Act, the
Federal Insecticide, Fungicide and Rodenticide Act and the Occupational Safety
and Health Act.
"Environmental Permit" means any permit, approval, identification number,
license or other authorization required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and the rulings
issued thereunder.
"ERISA Affiliate" means, with respect to any Person, any other Person that
for purposes of Title IV of ERISA is a member of such Person's controlled
group, or under common control with such Person, within the meaning of Section
414 of the Internal Revenue Code.
"ERISA Event" means, with respect to any Person:
(a) the occurrence of a reportable event, within the meaning of
Section 4043 of ERISA, with respect to any Plan of such Person or any of
its ERISA Affiliates unless the 30-day notice requirement with respect to
such event has been waived by the PBGC;
(b) the provision by the administrator of any Plan of such Person or
any of its ERISA Affiliates of a notice of intent to terminate such Plan,
pursuant to Section 4041(a)(2) of ERISA (including any such notice with
respect to a plan amendment referred to in Section 4041(e) of ERISA);
(c) the cessation of operations at a facility of such Person or any
of its ERISA Affiliates in the circumstances described in Section 4062(e)
of ERISA;
(d) the withdrawal by such Person or any of its ERISA Affiliates from
a Multiple Employer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA;
(e) the failure by such Person or any of its ERISA Affiliates to make
a payment to a Plan required under Section 302(f)(1) of ERISA;
<PAGE> 15
10
(f) the adoption of an amendment to a Plan of such Person or any of
its ERISA Affiliates requiring the provision of security to such Plan,
pursuant to Section 307 of ERISA; or
(g) the institution by the PBGC of proceedings to terminate a Plan of
such Person or any of its ERISA Affiliates, pursuant to Section 4042 of
ERISA, or the occurrence of any event or condition described in Section
4042 of ERISA that could constitute grounds for the termination of, or the
appointment of a trustee to administer, such Plan.
"Eurodollar Liabilities" has the meaning specified in Regulation D of the
Board of Governors of the Federal Reserve System, as in effect from time to
time.
"Eurodollar Lending Office" means, with respect to any Lender, the office
of such Lender specified as its "Eurodollar Lending Office" opposite its name
on Schedule I hereto or in the Assignment and Acceptance pursuant to which it
became a Lender (or, if no such office is specified, its Domestic Lending
Office), or such other office of such Lender as such Lender may from time to
time specify to GNC, GNI and the Administrative Agent.
"Eurodollar Rate" means for any Interest Period for all Eurodollar Rate
Advances comprising part of the same Borrowing, an interest rate per annum
equal to the rate per annum obtained by dividing (a) the average of the
respective rates per annum posted by each of the principal London offices of
banks posting rates as displayed on the Telerate screen, page 3750, or such
other page as may replace such page on such service for the purpose of
displaying the London interbank offered rate of major banks for deposits in
dollars, at approximately 11:00 A.M. (London time) two Business Days before the
first day of such Interest Period for deposits in amounts and durations
comparable to such Borrowing and such Interest Period (and rounded upward to
the next whole multiple of 1/16 of 1%) by (b) a percentage equal to 100% minus
the Eurodollar Rate Reserve Percentage for such Interest Period; provided that
for purposes of calculating the Eurodollar Rate with respect to any Interest
Period of one week during the first thirty days following the Fourth
Restatement Date, the Reuters screen, page LIBO should be used in lieu of the
Telerate screen, page 3750 in clause (a) hereof.
"Eurodollar Rate Advance" means an Advance that bears interest as provided
in Section 2.06(a)(ii).
"Eurodollar Rate Reserve Percentage" means, for any Interest Period for
all Eurodollar Rate Advances comprising part of the same Borrowing, the reserve
percentage applicable two Business Days before the first day of such Interest
Period
<PAGE> 16
11
under regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor thereto) for determining the maximum
reserve requirement (including, without limitation, any emergency, supplemental
or other marginal reserve requirement) for a member bank of the Federal Reserve
System in New York City with respect to liabilities or assets consisting of or
including Eurodollar Liabilities (or with respect to any other category of
liabilities that includes deposits by reference to which the interest rate on
Eurodollar Rate Advances is determined) having a term equal to such Interest
Period.
"Events of Default" has the meaning specified in Section 6.01.
"Existing Credit Agreement" means the credit agreement dated as of January
18, 1993, which credit agreement was amended and restated pursuant to an
amended and restated credit agreement dated as of February 10, 1993, was
further amended and restated pursuant to a second amended and restated credit
agreement dated as of July 19, 1994 and was further amended and restated
pursuant to a third amended and restated credit agreement dated as of March 21,
1996 with the banks parties thereto and BNP, as agent, as amended, supplemented
or otherwise modified through the Fourth Restatement Date.
"Existing Lenders" means the lenders party to the Existing Credit
Agreement.
"Existing Letters of Credit" has the meaning specified in Section 2.13(a).
"Facility" means the Revolving Credit Facility, the Letter of Credit
Facility or the Swing Line Facility.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period (i) to the rate published by
the Telerate service on page five of its daily report as the "New York Offered
Rate" as of 10:00 A.M. (New York City time) for such day (or, if such day is
not a Business Day, for the immediately preceding Business Day) or (ii) if the
Telerate service shall cease to publish or otherwise shall not publish such
rates for any day that is a Business Day, to the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published for such day (or, if
such day is not a Business Day, for the immediately preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day that is a Business Day, the average of the quotations for such day for
such transactions received by the Administrative Agent from three federal funds
brokers of recognized standing selected by it.
<PAGE> 17
12
"Fiscal Quarter" means a fiscal quarter of GNCI and its Subsidiaries
ending on or about April 27, July 20, October 12 or February 3 of each year.
"Fiscal Year" means the period commencing the day after the Saturday
closest to but not prior to the 31st day of January in any calendar year and
ending on the Saturday closest to but not preceding the 31st day of January in
the next succeeding calendar year, and when referred to from time to time
herein by reference to a calendar year, shall be the Fiscal Year beginning in
the calendar year to which reference is made.
"Fixed Charge Coverage Ratio" means, with respect to any period, the ratio
for GNCI and its Subsidiaries during such period of (a) the sum of (x)
Consolidated EBITA plus (y) Consolidated Store Operating Lease Expense to (b)
the sum of (i) Consolidated Interest Expense plus (ii) Consolidated income
taxes which were paid in cash plus (iii) Consolidated Store Operating Lease
Expense plus (iv) scheduled amortization of Consolidated Funded Indebtedness.
"Foreign Currency" means lawful currency other than Dollars which is
freely transferable and convertible into Dollars.
"Foreign Subsidiary" means a wholly-owned (except for any shares of
capital stock that are Qualifying Shares) Subsidiary that is organized, and
with substantially all of its assets located, outside of the United States.
"Fourth Amended and Restated Parent Guaranty" has the meaning specified in
Section 3.01(f)(viii).
"Fourth Amended and Restated Subsidiary Guaranty" has the meaning
specified in Section 3.01(f)(viii) and shall include any subsidiary guaranty
entered into by any Loan Party pursuant to Section 5.01(m).
"Fourth Restatement Date" means any date on or before April 30, 1997 on
which the conditions set forth in Article III applicable to the effectiveness
of this Agreement have been fulfilled or waived.
"Franchisee Note" means a promissory note duly executed and delivered to a
Borrower or any Subsidiary by a Person that is a franchisee of a retail outlet
of such Borrower or such Subsidiary, including any amendment, modification,
renewal or replacement of such promissory note.
"Funded Indebtedness" of any Person means Indebtedness of such Person that
by its terms matures more than one year after the date of creation or matures
within
<PAGE> 18
13
one year from such date but is renewable or extendible, at the option of such
Person, to a date more than one year after such date or arises under a
revolving credit or similar agreement that obligates the lender or lenders to
extend credit during a period of more than one year after such date, including,
without limitation, all amounts of Funded Indebtedness of such Person required
to be paid or prepaid within one year after the date of determination.
"GAAP" has the meaning specified in Section 1.03.
"GNC" has the meaning set forth in the recitals of the parties to this
Agreement.
"GNC Borrower Account" means the account of GNC maintained by GNC with BNP
at its office at 499 Park Avenue, New York, New York 10022, Account No.
20065800113, or such other account as is agreed upon between GNC and the
Administrative Agent.
"GNCC" means GNC (Canada) Holding Company, a Delaware corporation.
"GNCI" has the meaning set forth in the recitals of the parties to this
Agreement.
"GNCL" means GNC Limited, a Delaware corporation.
"GNCUK" means GNC (UK) Holding Company, a Delaware corporation.
"GND" means General Nutrition Distribution Company, a Pennsylvania
business trust whose sole beneficiaries are GNS and GNIC.
"GNF" means GNC Franchising, Inc., a Pennsylvania corporation.
"GNG" means General Nutrition Government Services, Inc., a Delaware
corporation.
"GNI" has the meaning set forth in the recitals of the parties to this
Agreement.
"GNI Borrower Account" means the account of GNI maintained by GNI with BNP
at its office at 499 Park Avenue, New York, New York 10022, Account No.
20065600196, or such other account as is agreed upon between GNI and the
Administrative Agent.
<PAGE> 19
14
"GNIC" means General Nutrition Investment Company, a Delaware corporation
and a wholly-owned subsidiary of GNI.
"GNII" means General Nutrition International, Inc. a Delaware corporation
and a wholly-owned subsidiary of GNF.
"GNCIH" means GNC International Holdings, Inc., a Delaware corporation.
"GNP" means General Nutrition Products, Inc., a South Carolina
corporation.
"GNS" means General Nutrition Services, Inc., a Delaware corporation and a
wholly-owned subsidiary of GNIC.
"Gustine" has the meaning set forth in Section 5.02(e)(x).
"Hazardous Materials" means (a) petroleum or petroleum products, natural
or synthetic gas, asbestos in any form that is or could become friable, urea
formaldehyde foam insulation and radon gas, (b) any substances defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants," or words of similar import, under any Environmental Law and (c)
any other substance exposure to which is regulated under any Environmental Law.
"Health Care Business" means any business which is involved in providing
products, services or information in the self-care and personal health
enhancement markets.
"Hedge Agreements" means interest rate swap, cap or collar agreements,
interest rate future or option contracts, currency swap agreements, currency
future or option contracts and other similar agreements.
"Indebtedness" of any Person means, without duplication:
(a) all indebtedness of such Person for borrowed money;
(b) all Obligations of such Person for the deferred purchase price of
property or services;
(c) all Obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments;
<PAGE> 20
15
(d) all Obligations of such Person created or arising under any
conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of
the seller or lender under such agreement in the event of default are
limited to repossession or sale of such property);
(e) all Obligations of such Person as lessee under leases that have
been or should be, in accordance with GAAP, recorded as capital leases
("Capitalized Leases");
(f) all Obligations, contingent or otherwise, of such Person under
acceptance, letter of credit or similar facilities;
(g) all Obligations of such Person to purchase, redeem, retire,
defease or otherwise make any payment in respect of any capital stock
(other than Obligations, if any, (i) arising from the declaration of
dividends on common stock or (ii) to pay stated dividends on Preferred
Stock) or other ownership or profit interest in such Person or any other
Person, or any warrants, rights or options to acquire such capital stock,
valued, in the case of Redeemable Preferred Stock, at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends;
(h) all Obligations in respect of Hedge Agreements;
(i) all Indebtedness of others referred to in clauses (a) through (h)
above guaranteed directly or indirectly in any manner by such Person, or
in effect guaranteed directly or indirectly by such Person through an
agreement (i) to pay or purchase such Indebtedness or to advance or supply
funds for the payment or purchase of such Indebtedness, (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell
services, primarily for the purpose of enabling the debtor to make payment
of such Indebtedness or to assure the holder of such Indebtedness against
loss, (iii) to supply funds to or in any other manner invest in the debtor
(including any agreement to pay for property or services irrespective of
whether such property is received or such services are rendered) or (iv)
otherwise to assure a creditor against loss; and
(j) all Indebtedness referred to in clauses (a) through (h) above
secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property
(including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for
the payment of such Indebtedness.
<PAGE> 21
16
"Indemnified Party" has the meaning specified in Section 8.04(b).
"Insufficiency" means, with respect to any Plan, the amount, if any, of
its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA.
"Intercompany Subordinated Debt" means Indebtedness from time to time of
GNI to GNCI subordinated pursuant to the Intercompany Subordination Agreement.
"Intercompany Subordination Agreement" means an agreement substantially in
the form of Exhibit G hereto made by GNCI in favor of BNP, as Administrative
Agent for the Lenders, as of the date hereof.
"Interest Expense" means, with respect to any Person for any period
(without duplication), interest expense for such period on all Indebtedness of
such Person and its Subsidiaries, net of interest income (other than interest
income from Franchisee Notes) for such period, including, without limitation,
(a) interest in respect of Indebtedness resulting from Advances, (b)
commissions, discounts and other fees and charges payable in connection with
letters of credit, (c) the net payment paid in connection with Hedge Agreements
less any net credits received in connection with Hedge Agreements, (d) the
interest component of payments under Capitalized Leases, (e) amortization of
original issue discount and (f) all other noncash interest but excluding
amortization with respect to deferred financing fees.
"Interest Period" means, for all Eurodollar Rate Advances comprising part
of the same Borrowing, the period commencing on the date of such Eurodollar
Rate Advances or on the date of the Conversion of any Base Rate Advance into
any such Eurodollar Rate Advance, and ending on the last day of the period
selected by the Borrowers pursuant to the provisions below, and thereafter,
each subsequent period commencing on the last day of the immediately preceding
Interest Period and ending on the last day of the period selected by the
Borrowers pursuant to the provisions below. The duration of each such Interest
Period shall be (except as provided for below) one, two, three or six months,
as the Borrowers may, upon notice received by the Administrative Agent not
later than 12:00 P.M. (New York City time) on the third Business Day prior to
the first day of such Interest Period, select; provided, however, that:
(a) no Borrower may select any Interest Period that ends after any
principal repayment installment date unless, after giving effect to such
selection, the aggregate principal amount of Base Rate Advances and of
Eurodollar Rate Advances having Interest Periods that end on or prior to
such principal repayment installment date shall be at least equal to the
aggregate principal amount of Advances due and payable on or prior to such
date;
<PAGE> 22
17
(b) Interest Periods commencing on the same date for Eurodollar Rate
Advances comprising part of the same Borrowing shall be of the same
duration;
(c) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such Interest
Period shall be extended to occur on the next succeeding Business Day;
provided, however, that, if such extension would cause the last day of
such Interest Period to occur in the next following calendar month, the
last day of such Interest Period shall occur on the immediately preceding
Business Day;
(d) whenever the first day of any Interest Period occurs on a day of
an initial calendar month for which there is no numerically corresponding
day in the calendar month that succeeds such initial calendar month by the
number of months equal to the number of months in such Interest Period,
such Interest Period shall end on the last Business Day of such succeeding
calendar month; and
(e) during the first thirty days following the Fourth Restatement
Date, the Borrowers may, upon notice received by the Administrative Agent
not later than 12:00 P.M. (New York City time) on the third Business Day
prior to the first day of the Interest Period, select an Interest Period
of one week; provided, however, that no Borrower may select an Interest
Period with a one week duration more than four times during such period.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and the rulings
issued thereunder.
"Investment" in any Person means any loan or advance to such Person, any
purchase or other acquisition of any capital stock, warrants, rights, options,
obligations or other securities of such Person, any capital contribution to
such Person or any other investment in such Person, including, without
limitation, any arrangement pursuant to which the investor incurs Indebtedness
of the types referred to in clauses (h) and (i) of the definition of
"Indebtedness" in respect of such Person.
"Issuing Bank" means BNP.
"L/C Cash Collateral Account" means the non-interest bearing cash
collateral accounts with BNP at 499 Park Avenue, New York, New York 10022,
Account Nos. 20067200114 and 20067400128 in the name of GNI and GNC,
respectively.
<PAGE> 23
18
"L/C Related Documents" has the meaning specified in Section 2.13(d)(ii).
"Lenders" means the Restatement Lenders listed on the signature pages
hereof and each Eligible Assignee that shall become a party hereto pursuant to
Section 8.07.
"Letter of Credit Advance" means an advance made by the Issuing Bank or
any Lender pursuant to Section 2.13(c).
"Letter of Credit Commitment" has the meaning specified in Section
2.13(a).
"Letter of Credit Facility" has the meaning specified in Section 2.13(a).
"Letters of Credit" has the meaning specified in Section 2.13(a).
"Lien" means any lien, security interest or other charge or encumbrance of
any kind, or any other type of preferential arrangement, including, without
limitation, the lien or retained security title of a conditional vendor and any
easement, right of way or other encumbrance on title to real property.
"Loan Documents" means (a) for purposes of this Agreement and the Notes
and any amendment or modification hereof or thereof and for all other purposes
other than for purposes of the Fourth Amended and Restated Parent Guaranty, and
the Fourth Amended and Restated Subsidiary Guaranty (i) this Agreement, (ii)
the Notes, (iii) the Fourth Amended and Restated Parent Guaranty, and (iv) the
Fourth Amended and Restated Subsidiary Guaranty, (b) for purposes of the Fourth
Amended and Restated Parent Guaranty and the Fourth Amended and Restated
Subsidiary Guaranty, (i) this Agreement, (ii) the Notes, (iii) the Fourth
Amended and Restated Parent Guaranty, (iv) the Fourth Amended and Restated
Subsidiary Guaranty, and (v) each Hedge Agreement entered into with a Lender,
in each case as amended or otherwise modified from to time.
"Loan Parties" means the Borrowers, GNCI and each Subsidiary Guarantor.
"Margin Stock" has the meanings specified in Regulations G and U of the
Board of Governors of the Federal Reserve System.
"Material Adverse Change" means any material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Loan Parties and their Subsidiaries taken as a
whole.
"Material Adverse Effect" means any material adverse effect on (a) the
business, condition (financial or otherwise), operations, performance,
properties or
<PAGE> 24
19
prospects of the Loan Parties and their Subsidiaries taken as a whole, (b) the
rights and remedies of any Agent or any Lender under any Loan Document or any
Related Document or (c) the ability of any Loan Party to perform its
Obligations under any Loan Document or any Related Document to which it is or
is to be a party.
"Material Contract" means (a) the Amended and Restated Agreement dated
September 24, 1992 by and between Showa Denko America, Inc. and General
Nutrition, Inc. and (b) the Guaranty Agreement dated as of September 24, 1992
by and between Showa Denko K.K. and General Nutrition, Inc., as in effect on
the Fourth Restatement Date.
"Maximum Leverage Ratio" means, with respect to any period, the ratio of
(a) Consolidated Total Debt of GNCI and its Subsidiaries at the end of such
period to (b) Consolidated EBITDA of GNCI and its Subsidiaries for such period
(the computation of such ratio to include, in the case of Indebtedness created,
incurred or assumed in connection with any Investment permitted by Sections
5.02(e)(i), (iv), (v), (vi), (vii) and (ix), the EBITDA of each such Person in
which such Investment was made for the 12-month period, or such shorter period
as appropriate, ended on or immediately prior to the end of such period).
"Multiemployer Plan" means, with respect to any Person, a multiemployer
plan, as defined in Section 4001(a)(3) of ERISA, to which such Person or any of
its ERISA Affiliates is making or accruing an obligation to make contributions,
or has within any of the preceding five plan years made or accrued an
obligation to make contributions.
"Multiple Employer Plan" means, with respect to any Person, a single
employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is
maintained for employees of such Person or any of its ERISA Affiliates and at
least one Person other than such Person and its ERISA Affiliates or (b) was so
maintained and in respect of which such Person or any of its ERISA Affiliates
could reasonably be expected to have liability under Section 4064 or 4069 of
ERISA in the event such plan has been or were to be terminated.
"NFC" means Nature Food Centres, Inc., a Maryland Corporation.
"NFCI" means NFC, Inc., a Massachusetts corporation.
"NFN" means Nature's Fresh Northwest, Inc., a Delaware corporation.
"Net Cash Proceeds" means, with respect to any sale, lease, transfer or
other disposition of any asset or the incurrence or issuance of any
Indebtedness or capital
<PAGE> 25
20
stock, any securities convertible into or exchangeable for capital stock or any
warrants, rights or options to acquire capital stock by any Person, the
aggregate amount of cash received from time to time by or on behalf of such
Person in connection with such transaction after deducting therefrom only (a)
reasonable and customary brokerage commissions, underwriting fees and
discounts, legal fees, finder's fees and other similar fees and commissions,
(b) the amount of taxes payable in connection with or as a result of such
transaction, (c) the amount of any Indebtedness secured by a Lien on such asset
that, by the terms of such transaction, is required to be repaid upon such
disposition and (d) other reasonable and customary costs and expenses
ordinarily incurred and paid by a seller, lessor, transferor or issuer, as the
case may be, in each case to the extent, but only to the extent, that the
amounts so deducted are substantially simultaneously paid to a Person that is
not an Affiliate and are properly attributable to such transaction or to the
asset that is the subject thereof.
"Note" means a Revolving Credit Note or a Swing Line Note.
"Notice of Borrowing" has the meaning specified in Section 2.02(a).
"Notice of Issuance" has the meaning specified in Section 2.13(b)(i).
"Notice of Swing Line Borrowing" has the meaning specified in Section
2.02(b).
"Obligation" means, with respect to any Person, any obligation of such
Person of any kind, including, without limitation, any liability of such Person
on any claim, whether or not the right of any creditor to payment in respect of
such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, disputed, undisputed, legal, equitable, secured or unsecured, and
whether or not such claim is discharged, stayed or otherwise affected by any
proceeding referred to in Section 6.01(e). Without limiting the generality of
the foregoing, the Obligations of the Loan Parties under the Loan Documents
include (a) the obligation to pay principal, interest, charges, expenses, fees,
attorneys' fees and disbursements, indemnities and other amounts payable by any
Loan Party under any Loan Document and (b) the obligation to reimburse any
amount in respect of any of the foregoing that any Lender, in its sole
discretion, may elect to pay or advance on behalf of such Loan Party.
"OECD" means the Organization for Economic Cooperation and Development.
"Other Taxes" has the meaning specified in Section 2.11(b).
"PBGC" means the Pension Benefit Guaranty Corporation.
<PAGE> 26
21
"Performance Level" means, as of any date of determination, the level set
forth below as then applicable, as determined in accordance with the following
provisions of this definition:
I Maximum Leverage Ratio is less than or equal to 2.00 : 1.00.
II Maximum Leverage Ratio is greater than 2.00 : 1.00 but less than or
equal to 2.50 : 1.00.
III Maximum Leverage Ratio is greater than 2.50 : 1.00 but less than or
equal to 3.00 : 1.00.
IV Maximum Leverage Ratio is greater than 3.00 : 1.00 but less than or
equal to 3.25 : 1.00.
V Maximum Leverage Ratio is greater than 3.25 : 1.00.
"Permitted Franchise Asset Sale" means the sale, in the ordinary course of
business, by the Borrowers and their Subsidiaries pursuant to a franchise
agreement of equipment, fixed assets and leasehold improvements, inventory and
intangible assets to a franchisee of either Borrower or any of its
Subsidiaries.
"Permitted Liens" means such of the following as to which no enforcement,
collection, execution, levy or foreclosure proceeding shall have been
commenced:
(a) Liens for taxes, assessments and governmental charges or levies
to the extent not required to be paid under Section 5.01(b);
(b) Liens imposed by law, such as materialmen's, mechanics',
carriers', workmen's and repairmen's Liens and other similar Liens arising
in the ordinary course of business securing obligations that (i) are not
overdue for a period of more than 30 days and (ii) either individually or
when aggregated with all other Permitted Liens outstanding on any date of
determination, do not adversely affect the use or value of a material
amount of the Borrowers' and their Subsidiaries' properties that are being
refurbished and constructed;
(c) pledges or deposits under workers' compensation laws,
unemployment insurance laws or similar legislation or good faith deposits
in connection with bids, tenders, contracts (other than for the payment of
Indebtedness) or leases, or deposits to secure public or statutory
obligations;
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22
(d) Liens arising out of judgments or awards under appeal or other
proceedings for review to the extent such Liens do not constitute an Event
of Default; and
(e) easements, rights of way and other encumbrances on title to real
property that do not render title to the property encumbered thereby
unmarketable or materially adversely affect the use of such property for
its present purposes.
"Person" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"PIK Preferred Stock" means the Series A Preferred Stock of GNI.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Preferred Stock" means, with respect to any corporation, capital stock
issued by such corporation that is entitled to a preference or priority over
any other capital stock issued by such corporation upon any distribution of
such corporation's assets, whether by dividend or upon liquidation.
"Pro Rata Share" of any amount means, with respect to any Lender at any
time, the product of (a) a fraction the numerator of which is the amount of
such Lender's Revolving Credit Commitment at such time and the denominator of
which is the Revolving Credit Facility at such time multiplied by (b) such
amount.
"Qualifying Shares" means, with respect to any Subsidiary organized
outside of the United States, any qualifying ownership shares or similar
ownership interests required by the applicable law of any such foreign
jurisdiction to be held by a resident of such foreign jurisdiction or by an
officer, employee or director of such Subsidiary.
"Redeemable" means, with respect to any capital stock, Indebtedness or
other right or Obligation, any such capital stock, Indebtedness, right or
Obligation that (a) the issuer has undertaken to redeem at a fixed or
determinable date or dates, whether by operation of a sinking fund or
otherwise, or upon the occurrence of a condition not solely within the control
of the issuer or (b) is redeemable at the option of the holder.
"Register" has the meaning specified in Section 8.07(c).
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23
"Related Documents" means the Tax Sharing Agreement and the Intercompany
Subordination Agreement.
"Required Lenders" means, at any time, Lenders owed or holding in the
aggregate at least 51% of the sum of (a) the then aggregate unpaid principal
amount of the Advances, (b) the then Unused Revolving Credit Commitments and
(c) the aggregate Available Amount of all Letters of Credit then outstanding.
For purposes of this definition, the Available Amount of each Letter of Credit
shall be considered to be owed to the Lenders ratably in accordance with their
Revolving Credit Commitments.
"Restatement Lenders" has the meaning specified in the recital of parties
to this Agreement.
"Revolving Credit Advance" has the meaning specified in Section 2.01(b).
"Revolving Credit Borrowing" means a borrowing consisting of simultaneous
Revolving Credit Advances of the same Type made by the Lenders.
"Revolving Credit Commitment" means, with respect to any Lender at any
time, the amount set forth opposite such Lender's name on Schedule I hereto
under the caption "Revolving Credit Commitment" or, if such Lender has entered
into one or more Assignments and Acceptances, the amount set forth for such
Lender in the Register maintained by the Administrative Agent pursuant to
Section 8.07(c) as such Lender's "Revolving Credit Commitment", as such amount
may be reduced at or prior to such time pursuant to Section 2.03.
"Revolving Credit Facility" means, at any time, the aggregate amount of
the Lenders' Revolving Credit Commitments at such time.
"Revolving Credit Note" means an amended and restated promissory note of a
Borrower payable to the order of any Lender, in substantially the form of
Exhibit A-1 hereto, evidencing the aggregate indebtedness of such Borrower to
such Lender resulting from Revolving Credit Advances made by such Lender.
"Rolling Period" means in respect of any Fiscal Quarter, such Fiscal
Quarter and the three preceding Fiscal Quarters.
"SEC" means the Securities and Exchange Commission.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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24
"Single Employer Plan" means, with respect to any Person, a single
employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is
maintained for employees of such Person or any of its ERISA Affiliates and no
Person other than such Person and its ERISA Affiliates or (b) was so maintained
and in respect of which such Person or any of its ERISA Affiliates could
reasonably be expected to have liability under Section 4069 of ERISA in the
event such plan has been or were to be terminated.
"Solvent" and "Solvency" mean, with respect to any Person on any date of
determination, that on such date (a) the fair value of the property of such
Person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person, (b) the present fair
saleable value of the assets of such Person is not less than the amount that
will be required to pay the probable liability of such Person on its debts as
they become absolute and matured, (c) such Person does not intend to, and does
not believe that it will, incur debts or liabilities beyond such Person's
ability to pay as such debts and liabilities mature and (d) such Person is not
engaged in business or in a transaction, and is not about to engage in business
or in a transaction, for which such Person's property would constitute
unreasonably small capital.
"Standby Letter of Credit" means any Letter of Credit issued under the
Letter of Credit Facility, other than a Trade Letter of Credit.
"Store Operating Lease Expense" means all operating lease expenses and
rents in connection with retail stores of GNCI and its Subsidiaries, including
base rents and percentage rents.
"Subsidiary" of any Person means any corporation, partnership, joint
venture, trust or estate of which (or in which) more than 50% of (a) the issued
and outstanding capital stock having ordinary voting power to elect a majority
of the Board of Directors of such corporation (irrespective of whether at the
time capital stock of any other class or classes of such corporation shall or
might have voting power upon the occurrence of any contingency), (b) the
interest in the capital or profits of such partnership or joint venture or (c)
the beneficial interest in such trust or estate is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or more
of its other Subsidiaries or by one or more of such Person's other
Subsidiaries.
"Subsidiary Guarantors" means GNC, GNP, GNIC, GNS, GNF, GNII, GNCIH, GNG,
GNCL, GNCC, GNCUK, GND, NFC, NFCI, NFN, VSS and any other Subsidiary of either
GNC or GNI that enters into a guaranty pursuant to Section 5.01(m).
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25
"Swing Line Advance" means an advance made by (a) the Swing Line Bank
pursuant to Section 2.01(c) or (b) any Lender pursuant to Section 2.02(b).
"Swing Line Bank" means BNP.
"Swing Line Borrowing" means a borrowing consisting of a Swing Line
Advance made by the Swing Line Bank.
"Swing Line Facility" has the meaning specified in Section 2.01(c).
"Swing Line Note" means a promissory note of a Borrower payable to the
order of the Swing Line Bank, in substantially the form of Exhibit A-3 hereto,
evidencing the aggregate indebtedness of such Borrower to the Swing Line Bank
resulting from the Swing Line Advances made by the Swing Line Bank.
"Syndication Agents" has the meaning set forth in the recital of parties
to this Agreement.
"Tax Sharing Agreement" means the Tax Sharing Agreement among GNCI, the
Borrowers and each of the Borrowers' Subsidiaries executed prior to the initial
Borrowing hereunder, as in effect on the Fourth Restatement Date.
"Taxes" has the meaning specified in Section 2.11(a).
"Termination Date" means the earlier of March 31, 2002 and the date of
termination in whole of the Commitments pursuant to Section 2.03 or 6.01.
"Total Adjusted Debt" means, at any date of determination, the aggregate
amount of all outstanding and other undrawn commitments to provide Indebtedness
to the Borrowers or its Foreign Subsidiaries pursuant to Sections 5.02(b)(i)(A)
and 5.02(b)(iv)(B), respectively, and all other Indebtedness of the type
permitted by Section 5.02(b) outstanding at such time, other than the
Indebtedness referred to in Sections 5.02(b)(i)(D), 5.02(b)(ii), 5.02(b)(iii),
5.02(b)(v)(A) and 5.02(b)(vii).
"Total Debt" means, at any date of determination, Indebtedness of the type
permitted by Section 5.02(b) outstanding at such time, other than the
Indebtedness referred to in Sections 5.02(b)(i)(D), 5.02(b)(ii), 5.02(b)(iii),
5.02(b)(v)(A) and 5.02(b)(vii).
"Trade Letter of Credit" means any Letter of Credit that is issued under
the Letter of Credit Facility for the benefit of a supplier of inventory or
equipment to the
<PAGE> 31
26
Borrowers or any of their respective Subsidiaries to effect payment for such
inventory or equipment.
"Trade Letter of Credit Agreement" has the meaning specified in
2.13(b)(i).
"Type" refers to the distinction between Advances bearing interest at the
Base Rate and Advances bearing interest at the Eurodollar Rate.
"Unused Revolving Credit Commitment" means, with respect to any Lender at
any time, (a) such Lender's Revolving Credit Commitment at such time less (b)
the sum of (i) the aggregate principal amount of all Revolving Credit Advances,
Letter of Credit Advances and Swing Line Advances made by such Lender and
outstanding at such time and (ii) such Lender's Pro Rata Share of (A) the
aggregate principal amount of all Swing Line Advances made by the Swing Line
Bank pursuant to Section 2.02(b) and outstanding at such time, other than any
such Swing Line Advance that, at or prior to such time, has been assigned in
part to, and made by, such Lender pursuant to Section 2.02(b), (B) the
aggregate Available Amount of all Letters of Credit outstanding at such time
and (C) the aggregate principal amount of all Letter of Credit Advances made by
the Issuing Bank pursuant to Section 2.13(c) and outstanding at such time,
other than any such Letter of Credit Advance that, at or prior to such time,
has been assigned in part to, and made by, such Lender pursuant to Section
2.13(c).
"Voting Stock" means capital stock issued by a corporation, or equivalent
interests in any other Person, the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of directors (or
persons performing similar functions) of such Person, even though the right so
to vote has been suspended by the happening of such a contingency.
"VSS, Inc." means VSS, a Massachusetts corporation.
"Welfare Plan" means, with respect to any Person, a welfare plan, as
defined in Section 3(1) of ERISA (other than a multiemployer plan, as defined
in Section 3(37) of ERISA), maintained for employees of such Person.
"Withdrawal Liability" has the meaning specified in Part I of Subtitle E
of Title IV of ERISA.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" both
mean "to but excluding".
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27
SECTION 1.03. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles in the United States consistent with those applied in the
preparation of the financial statements referred to in Section 4.01(f)
("GAAP").
SECTION 1.04. Currency Equivalents Generally. The equivalent in any
Foreign Currency of an amount in Dollars shall be determined at the rate of
exchange quoted by BNP in New York City, at 9:00 A.M. (New York City time) on
the date of determination, to prime banks in New York City for the spot
purchase in the New York foreign exchange market of such amount of Dollars with
such Foreign Currency.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances. (a) Purchase of Assignments. Each Lender
severally agrees, on the terms and conditions hereinafter set forth, to
purchase and assume on the Fourth Restatement Date an undivided interest in the
rights and obligations of the Existing Lenders under the Existing Credit
Agreement in an amount up to such Lender's Pro Rata Share of the aggregate of
the Revolving Credit Commitments hereunder, such purchase to be effected by
payment to the Administrative Agent for the account of the Existing Lenders of
an amount equal to such Lender's Pro Rata Share of the aggregate principal
amount of the "Revolving Credit Advances" under the Existing Credit Agreement,
and all accrued interest and commitment fees under the Existing Credit
Agreement through the Fourth Restatement Date. Such purchase shall be made on
such notice, and otherwise on such terms, as are provided under this Agreement
as though such purchase were a Borrowing hereunder. The "Revolving Credit
Advances" so purchased shall be redesignated Revolving Credit Advances
hereunder. In furtherance of the foregoing, each Lender hereby authorizes and
directs the Administrative Agent to accept the Assignment Agreement on behalf
of the Lenders.
(b) Revolving Credit Advances. Each Lender severally agrees, on the terms
and conditions hereinafter set forth, to make advances (the "Revolving Credit
Advances") to the Borrowers from time to time on any Business Day during the
period from the Fourth Restatement Date until the Termination Date in an amount
for each such Revolving Credit Advance not to exceed such Lender's Unused
Revolving Credit Commitment on such Business Day. Each Revolving Credit
Borrowing shall be in an aggregate amount of $3,000,000 or an integral multiple
of $100,000 in excess thereof and shall consist of Revolving Credit Advances
made by the Lenders ratably according to their Revolving Credit Commitments.
Within the limits of each Lender's Unused Revolving
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Credit Commitment in effect from time to time, the Borrowers may borrow under
this Section 2.01(b), prepay pursuant to Section 2.05(a) and reborrow under
this Section 2.01(b).
(c) The Swing Line Advances. The Borrowers may request the Swing Line Bank
to make, and the Swing Line Bank may, if in its sole discretion it elects to do
so, make, on the terms and conditions hereinafter set forth, Swing Line
Advances to the Borrowers from time to time on any Business Day during the
period from the Fourth Restatement Date until the Termination Date (i) in an
aggregate amount not to exceed at any time outstanding $10,000,000 (the "Swing
Line Facility") and (ii) in an amount for each such Advance not to exceed the
aggregate of the Unused Revolving Credit Commitments of the Lenders on such
Business Day. No Swing Line Advance shall be used for the purpose of funding
the payment of principal of any other Swing Line Advance. Each Swing Line
Borrowing shall be in an amount of $500,000 or an integral multiple of $100,000
in excess thereof and shall consist of a Base Rate Advance, which shall accrue
interest at a rate per annum of the Base Rate minus 0.75%. Within the limits of
the Swing Line Facility and within the limits referred to in clause (ii) above,
so long as the Swing Line Bank, in its sole discretion, elects to make Swing
Line Advances, the Borrowers may borrow under this 2.01(c), prepay pursuant to
Section 2.05(a) and reborrow under this Section 2.01(c).
SECTION 2.02. Making the Advances. (a) Each Borrowing other than a Swing
Line Borrowing shall be made on notice, given not later than (A) 12:00 noon
(New York City time) on the first Business Day prior to the date of the
proposed Borrowing in the case of a Borrowing consisting of Base Rate Advances,
(B) 12:00 noon (New York City time) on the third Business Day prior to the date
of the proposed Borrowing in the case of a Borrowing consisting of Eurodollar
Rate Advances by the relevant Borrower to the Administrative Agent, which shall
give to each Appropriate Lender prompt notice thereof by telex, telecopier or
cable. Each such notice of a Borrowing (a "Notice of Borrowing") shall be by
telex, telecopier or cable, in substantially the form of Exhibit B hereto,
specifying therein the requested (i) date of such Borrowing (which shall be a
Business Day), (ii) Type of Advances comprising such Borrowing, (iii) aggregate
amount of such Borrowing and (iv) in the case of a Borrowing consisting of
Eurodollar Rate Advances, initial Interest Period for each such Advance. In the
case of a proposed Borrowing comprised of Eurodollar Rate Advances, the
Administrative Agent shall promptly notify each Appropriate Lender of the
applicable interest rate under Section 2.06(a)(ii). Each Appropriate Lender
shall, before 12:00 noon (New York City time) on the date of such Borrowing,
make available for the account of its Applicable Lending Office to the
Administrative Agent at the Administrative Agent's Account, in same day funds,
such Lender's Pro Rata Share of such Borrowing. After the Administrative
Agent's receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article III, the Administrative Agent will make such funds
available to the Borrower giving the Notice of Borrowing by crediting the GNI
Borrower Account or the GNC Borrower Account, as appropriate.
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(b) Each Swing Line Borrowing shall be made on notice, given not later
than 12:00 noon (New York City time) on the date of the proposed Swing Line
Borrowing, by the relevant Borrower to the Swing Line Bank and the
Administrative Agent. Each such notice of a Swing Line Borrowing (a "Notice of
Swing Line Borrowing") shall be by telex or telecopier, in substantially the
form of Exhibit B hereto, except that any such Notice of Swing Line Borrowing
shall only designate a Base Rate Advance, specifying therein the requested (i)
date of such Borrowing (which shall be a Business Day), (ii) amount of such
Borrowing and (iii) maturity of such Borrowing (which maturity shall be no
later than the seventh day after the requested date of such Borrowing). If, in
its sole discretion, it elects to make the requested Swing Line Advance, the
Swing Line Bank will make the amount thereof available to the Administrative
Agent at the Administrative Agent's Account, in same day funds. After the
Administrative Agent's receipt of such funds and upon fulfillment of the
applicable conditions set forth in Article III, the Administrative Agent will
make such funds available to the relevant Borrower by crediting the GNI
Borrower Account or the GNC Borrower Account, as appropriate. Upon written
demand by the Swing Line Bank, with a copy of such demand to the Administrative
Agent, each other Lender shall purchase from the Swing Line Bank, and the Swing
Line Bank shall sell and assign to each such other Lender, such other Lender's
Pro Rata Share of such outstanding Swing Line Advance as of the date of such
demand, by making available for the account of its Applicable Lending Office to
the Administrative Agent for the account of the Swing Line Bank, by deposit to
the Administrative Agent's Account, in same day funds, an amount equal to the
portion of the outstanding principal amount of such Swing Line Advance to be
purchased by such Lender. The Borrowers hereby agree to each such sale and
assignment. Each Lender agrees to purchase its Pro Rata Share of an outstanding
Swing Line Advance on (i) the Business Day on which demand therefor is made by
the Swing Line Bank, provided that notice of such demand is given not later
than 12:00 noon (New York City time) on such Business Day or (ii) the first
Business Day next succeeding such demand if notice of such demand is given
after such time. Upon any such assignment by the Swing Line Bank to any other
Lender of a portion of a Swing Line Advance, the Swing Line Bank represents and
warrants to such other Lender that the Swing Line Bank is the legal and
beneficial owner of such interest being assigned by it, but makes no other
representation or warranty and assumes no responsibility with respect to such
Swing Line Advance, the Loan Documents or any Loan Party. If and to the extent
that any Lender shall not have so made the amount of such Swing Line Advance
available to the Administrative Agent, such Lender agrees to pay to the
Administrative Agent forthwith on demand such amount together with interest
thereon, for each day from the date of demand by the Swing Line Bank until the
date such amount is paid to the Administrative Agent, at the Federal Funds
Rate. If such Lender shall pay to the Administrative Agent such amount for the
account of the Swing Line Bank on any Business Day, such amount so paid in
respect of principal shall constitute a Swing Line Advance made by such Lender
on such Business Day for purposes of this Agreement, and the outstanding
principal amount of the Swing Line Advance made by the Swing Line Bank shall be
reduced by such amount on such Business Day.
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(c) Anything in subsection (a) to the contrary notwithstanding, (i) no
Borrower may select Eurodollar Rate Advances (1) for the initial Borrowing
hereunder, (2) for any Borrowing if the aggregate amount of such Borrowing is
less than $10,000,000 or (3) if the obligation of the Appropriate Lenders to
make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.09
and (ii) the Eurodollar Advances may not be outstanding as part of more than
eight separate Borrowings.
(d) Each Notice of Borrowing and Notice of Swing Line Borrowing shall be
irrevocable and binding on the relevant Borrower. In the case of any Borrowing
that the related Notice of Borrowing specifies is to be comprised of Eurodollar
Rate Advances, the Borrowers jointly and severally hereby agree to indemnify
each Appropriate Lender against any loss, cost or expense incurred by such
Lender as a result of any failure to fulfill on or before the date specified in
such Notice of Borrowing the applicable conditions set forth in Article III,
including, without limitation, any loss (including loss of anticipated
profits), cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such Lender to fund the Advance to be
made by such Lender as part of such Borrowing when such Advance, as a result of
such failure, is not made on such date.
(e) Unless the Administrative Agent shall have received notice from an
Appropriate Lender prior to the date of any Borrowing under a Facility under
which such Lender has a Commitment that such Lender will not make available to
the Administrative Agent such Lender's ratable portion of such Borrowing, the
Administrative Agent may assume that such Lender has made such portion
available to the Administrative Agent on the date of such Borrowing in
accordance with subsection (a) of this Section 2.02 and the Administrative
Agent may, in reliance upon such assumption, make available to the relevant
Borrower on such date a corresponding amount. If and to the extent that such
Lender shall not have so made such ratable portion available to the
Administrative Agent, such Lender and the Borrowers severally agree to repay or
pay to the Administrative Agent forthwith on demand such corresponding amount
and to pay interest thereon, for each day from the date such amount is made
available to the relevant Borrower until the date such amount is repaid or paid
to the Administrative Agent, at (i) in the case of the Borrowers, the interest
rate applicable at such time under Section 2.06 to Advances comprising such
Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such
Lender shall pay to the Administrative Agent such corresponding amount, such
amount so paid in respect of principal shall constitute such Lender's Advance
as part of such Borrowing for purposes of this Agreement.
(f) The failure of any Lender to make the Advance to be made by it as part
of any Borrowing shall not relieve any other Lender of its obligation, if any,
hereunder to make its Advance on the date of such Borrowing, but no Lender
shall be responsible for the failure of any other Lender to make the Advance to
be made by such other Lender on the date of any Borrowing.
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SECTION 2.03. Repayment. (a) Revolving Credit Advances. Each Borrower
hereby agrees to repay to the Administrative Agent for the ratable account of
the Lenders on the Termination Date the aggregate outstanding principal amount
of the Revolving Credit Advances borrowed by it.
(b) Swing Line Advances. Each Borrower hereby agrees to repay to the
Administrative Agent, for the account of the Swing Line Bank and each other
Lender which has made a Swing Line Advance to it, the outstanding principal
amount of each Swing Line Advance made by each of them on the earlier of the
maturity date specified in the applicable Notice of Swing Line Borrowing (which
maturity shall be no later than the seventh day after the requested date of
such Borrowing) and the Termination Date.
(c) Letter of Credit Advances. Each Borrower hereby agrees to repay to the
Administrative Agent, for the account of each Issuing Bank and each Lender that
has made a Letter of Credit Advance to it, the outstanding amount of each
Letter of Credit Advance made by each of them on demand.
SECTION 2.04. Optional Reduction of the Commitments. The Borrowers may,
upon at least three Business Days' notice to the Administrative Agent,
terminate in whole or reduce ratably in part the unused portion of the
Commitments of the Lenders without premium or penalty; provided, however, that
each partial reduction shall be in an aggregate amount of $10,000,000 or an
integral multiple of $1,000,000 in excess thereof.
SECTION 2.05. Prepayments. (a) Optional. Each Borrower may, upon at least
one Business Day's notice to the Administrative Agent stating the proposed date
and the aggregate principal amount of the prepayment, and if such notice is
given such Borrower agrees to, prepay, without premium or penalty, the
aggregate principal amount of the Advances comprising part of the same
Borrowings in whole or ratably in part on the aggregate principal amount
prepaid; provided, however, that (i) each partial prepayment shall be in an
aggregate principal amount of $3,000,000 or an integral multiple of $100,000 in
excess thereof and (ii) no such prepayment of a Eurodollar Rate Advance shall
be made other than on the last day of an Interest Period therefor.
(b) Mandatory. (i) The Borrowers jointly and severally agree to prepay, on
each Business Day, an aggregate principal amount of the Revolving Credit
Advances comprising part of the same Borrowings and the Swing Line Advances
equal to the amount by which (A) the sum of the aggregate principal amount of
the Revolving Credit Advances, plus the Swing Line Advances, plus the Letter of
Credit Advances, plus the aggregate Available Amount of all Letters of Credit,
each then outstanding exceeds (B) the Revolving Credit Facility on such
Business Day.
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(ii) The Borrowers jointly and severally agree to pay to the
Administrative Agent for deposit in the L/C Cash Collateral Account, on each
Business Day, an amount sufficient to cause the aggregate amount on deposit in
such L/C Cash Collateral Account to equal the amount by which the aggregate
Available Amount of all Letters of Credit then outstanding exceeds the Letter
of Credit Facility on such Business Day.
(iii) Prepayments of the Revolving Credit Facility made pursuant to clause
(i) above shall be first applied to prepay Letter of Credit Advances then
outstanding until such Advances are paid in full, second applied to prepay
Swing Line Advances then outstanding until such Advances are paid in full,
third applied to prepay Revolving Credit Advances then outstanding comprising
part of the same Borrowings until such Advances are paid in full and fourth
deposited in the L/C Cash Collateral Account to cash collateralize 105% of the
Available Amount of the Letters of Credit then outstanding. Upon the drawing of
any Letter of Credit for which funds are on deposit in the L/C Cash Collateral
Account, such funds shall be applied to reimburse the Issuing Bank or Lenders,
as applicable.
SECTION 2.06. Interest. (a) Scheduled Interest. The Borrowers jointly and
severally agree to pay interest on the unpaid principal amount of each Advance
owing to each Lender from the date of such Advance until such principal amount
shall be paid in full at the following rates per annum:
(i) Base Rate Advances. During such periods as such Advance is a Base Rate
Advance, a rate per annum equal at all times to the sum of (i) the Base Rate
in effect from time to time plus (ii) the Applicable Margin in effect from
time to time, payable quarterly in arrears from the Fourth Restatement Date
on the last Business Day of each March, June, September and December during
such periods, commencing on June 30, 1997, and on the Termination Date.
(ii) Eurodollar Rate Advances. During such periods as such Advance is a
Eurodollar Rate Advance, a rate per annum equal at all times during each
Interest Period for such Advance to the sum of (i) the Eurodollar Rate for
such Interest Period for such Advance plus (ii) the Applicable Margin in
effect from time to time, payable in arrears on the last day of such
Interest Period and, if such Interest Period has a duration of more than
three months, on each day that occurs during such Interest Period every
three months from the first day of such Interest Period.
(b) Default Interest. Upon the occurrence and during the continuance of a
Default under Section 6.01(e) or of an Event of Default and upon the request of
the Administrative Agent or the Required Lenders, the Borrowers jointly and
severally agree to pay interest on (i) the unpaid principal amount of each
Advance owing to each Lender, payable in arrears on the dates referred to in
clause (a)(i) or (a)(ii) above and on demand, at a rate per annum equal at all
times to 2% per annum above the rate per annum required to
<PAGE> 38
33
be paid on such Advance pursuant to clause (a)(i) or (a)(ii) above and
(ii) the amount of any interest, fee or other amount payable hereunder that is
not paid when due, from the date such amount shall be due until such amount
shall be paid in full, payable in arrears on the date such amount shall be paid
in full and on demand, at a rate per annum equal at all times to 2% per annum
above the rate per annum required to be paid on Base Rate Advances pursuant to
clause (a)(i) above.
SECTION 2.07. Fees. (a) Commitment Fee. The Borrowers jointly and
severally hereby agree to pay to the Administrative Agent for the account of
the Lenders a commitment fee on each Appropriate Lender's average daily Unused
Revolving Credit Commitment from the Fourth Restatement Date in the case of
each Restatement Lender and from the effective date specified in the Assignment
and Acceptance pursuant to which it became a Lender in the case of each other
Lender until the Termination Date, payable quarterly in arrears on the last
Business Day of each March, June, September and December, commencing on June
30, 1997, and on the Termination Date, at a rate per annum equal to the
Applicable Percentage in effect from time to time.
(b) Agents' Fees. The Borrowers jointly and severally agree to pay to each
Agent for its own account such fees as may from time to time be agreed upon
between the Borrowers and such Agent.
(c) Letter of Credit Commission. The Borrowers jointly and severally agree
to pay to the Administrative Agent for the account of each Lender a commission
on such Lender's Pro Rata Share of the average daily aggregate Available Amount
of all Letters of Credit outstanding from the Fourth Restatement Date and from
time to time thereafter, payable quarterly in arrears on the last Business Day
of each March, June, September and December commencing on June 30, 1997, and on
the Termination Date, at a rate per annum equal to the Applicable Margin in
effect from time to time.
(d) Letter of Credit Fee. The Borrowers jointly and severally agree to pay
to the Issuing Bank for its own account a fee on the average daily aggregate
Available Amount on all Letters of Credit outstanding and issued by the Issuing
Bank from the Fourth Restatement Date and from time to time thereafter at the
rate per annum equal to 0.250%, payable quarterly in arrears on the last
Business Day of each March, June, September and December commencing on June 30,
1997, and on the Termination Date.
(e) Letter of Credit Expenses. The Borrowers jointly and severally agree
to pay to the Issuing Bank, for its own account, such transfer fees and other
fees and charges in connection with the issuance or administration of each
Letter of Credit as such Borrowers and the Issuing Bank shall agree.
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34
SECTION 2.08. Conversion of Advances. (a) Optional. Any Borrower may on
any Business Day, upon notice given to the Administrative Agent not later than
12:00 noon (New York City time) on the third Business Day prior to the date of
the proposed Conversion and subject to the provisions of Section 2.09, Convert
all or any portion of the Advances owing by such Borrower of one Type
comprising the same Borrowing into Advances of the other Type; provided,
however, that any Conversion of Eurodollar Rate Advances into Base Rate
Advances shall be made on, and only on, the last day of an Interest Period for
such Eurodollar Rate Advances, any Conversion of Base Rate Advances into
Eurodollar Rate Advances shall be in an amount not less than the minimum amount
specified in Section 2.02(c) and no Conversion of any Advances shall result in
more separate Borrowings than permitted under Section 2.02(c). Each such notice
of Conversion shall, within the restrictions specified above, specify (i) the
date of such Conversion (which shall be a Business Day), (ii) the Advances to
be Converted and (iii) if such Conversion is into Eurodollar Rate Advances, the
duration of the initial Interest Period for such Advances. Each notice of
Conversion shall be irrevocable and binding on the relevant Borrower.
(b) Mandatory. (i) On the date on which the aggregate unpaid principal
amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced,
by payment or prepayment or otherwise, to less than $10,000,000, such Advances
shall automatically Convert into Base Rate Advances.
(ii) If any Borrower shall fail to select the duration of any Interest
Period for any Eurodollar Rate Advances in accordance with the provisions
contained in Section 2.02, the Administrative Agent will forthwith so notify
such Borrower and the Appropriate Lenders, whereupon each such Eurodollar Rate
Advance will automatically, on the last day of the then existing Interest
Period therefor Convert into a Base Rate Advance.
SECTION 2.09. Increased Costs, Etc. (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation after the date hereof or (ii) the compliance after the date hereof
with any guideline or request from any central bank or other governmental
authority (whether or not having the force of law), there shall be any increase
in the cost to any Lender of agreeing to make or of making, funding or
maintaining Eurodollar Rate Advances or of agreeing to issue or of issuing or
maintaining Letters of Credit or of agreeing to make or of making or
maintaining Letter of Credit Advances, then, upon demand by such Lender (with a
copy of such demand to the Administrative Agent), the Borrowers jointly and
severally hereby agree to pay to the Administrative Agent for the account of
such Lender additional amounts sufficient to compensate such Lender for such
increased cost; provided, however, that the Borrowers shall jointly and
severally be obligated to make such payment only if such Lender has given, or
has caused the Administrative Agent to give, notice to the Borrowers of the
facts or circumstances giving rise to such increased cost within ninety (90)
days after such Lender shall have itself received actual knowledge thereof. A
certificate as to the amount of such
<PAGE> 40
35
increased cost, submitted to the Borrowers by such Lender, shall be conclusive
and binding for all purposes, absent manifest error.
(b) If any Lender determines that compliance with any law or regulation or
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law) affects or would affect the amount of
capital required or expected to be maintained by such Lender or any corporation
controlling such Lender and that the amount of such capital is increased by the
existence of such Lender's commitment to lend, or the Issuing Bank's commitment
to issue Letters of Credit, hereunder and other commitments of such type or the
issuance or maintenance of the Letters of Credit (or similar contingent
obligations), then, upon demand by such Lender (with a copy of such demand to
the Administrative Agent), the Borrowers jointly and severally hereby agree to
pay to the Administrative Agent for the account of such Lender, from time to
time as specified by such Lender, additional amounts sufficient to compensate
such Lender in the light of such circumstances, to the extent that such Lender
reasonably determines such increase in capital to be allocable to the existence
of such Lender's commitment to lend, or the Issuing Bank's commitment to issue
Letters of Credit, hereunder or to the issuance or maintenance of any Letters
of Credit; provided that such additional amounts shall not include compensation
for any additional amounts arising from circumstances occurring more than 180
days prior to the date of such demand. A certificate as to such amounts,
submitted to the Borrowers by such Lender, shall be conclusive and binding for
all purposes, absent manifest error.
(c) If, with respect to any Eurodollar Rate Advances, Lenders owed at
least 51% of the then aggregate unpaid principal amount thereof notify the
Administrative Agent that the Eurodollar Rate for any Interest Period for such
Advances will not adequately reflect the cost to such Lenders of making,
funding or maintaining their Eurodollar Rate Advances for such Interest Period,
the Administrative Agent shall forthwith so notify the Borrowers and the
Appropriate Lenders, whereupon (i) each such Eurodollar Rate Advance will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Base Rate Advance and (ii) the obligation of such Lenders to
make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended
until the Administrative Agent shall notify the Borrowers that such Lenders
have determined that the circumstances causing such suspension no longer exist.
(d) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for any Lender or its Eurodollar
Lending Office to perform its obligations hereunder to make Eurodollar Rate
Advances or to continue to fund or maintain Eurodollar Rate Advances hereunder,
then, on notice thereof and demand therefor by such Lender to the Borrowers
through the Administrative Agent, (i) each Eurodollar Rate Advance under each
Facility under which such Lender has a Commitment will automatically, upon such
demand,
<PAGE> 41
36
Convert into a Base Rate Advance and (ii) the obligation of the Appropriate
Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be
suspended until the Administrative Agent shall notify the Borrowers that such
Lender has determined that the circumstances causing such suspension no longer
exist.
(e) Upon the occurrence and during the continuance of any Event of Default
or a Default under Section 6.01(e), (i) each Eurodollar Rate Advance will
automatically Convert into a Base Rate Advance and (ii) the obligation of the
Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be
suspended.
SECTION 2.10. Payments and Computations. (a) The Borrowers shall make each
payment hereunder and under the Notes, not later than 12:00 noon (New York City
time) on the day when due in U.S. dollars to the Administrative Agent at the
Administrative Agent's Account in same day funds. The Administrative Agent will
promptly thereafter cause like funds to be distributed (i) if such payment is
in respect of principal, interest, commitment fees or any other Obligation then
due and payable hereunder or under any of the Notes to more than one Lender, to
such Lenders for the account of their respective Applicable Lending Offices
ratably in accordance with the amounts of such respective Obligations then
payable to such Lenders and (ii) if such payment is in respect of any
Obligation then due and payable hereunder or under any of the Notes to one
Lender, to such Lender for the account of its Applicable Lending Office, in
each case to be applied in accordance with the terms of this Agreement. Upon
its acceptance of an Assignment and Acceptance and recording of the information
contained therein in the Register pursuant to Section 8.07(c), from and after
the effective date of such Assignment and Acceptance, the Administrative Agent
shall make all payments hereunder and under the Notes in respect of the
interest assigned thereby to the Lender assignee thereunder, and the parties to
such Assignment and Acceptance shall make all appropriate adjustments in such
payments for periods prior to such effective date directly between themselves.
(b) Each Borrower hereby authorizes each Lender, if and to the extent
payment owed to such Lender is not made when due hereunder or under the Note or
Notes held by such Lender, to charge from time to time against any or all of
such Borrower's accounts with such Lender any amount so due.
(c) All computations of interest and fees shall be made by the
Administrative Agent on the basis of a year of 360 days, in each case for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest and fees are payable. Each
determination by the Administrative Agent of an interest rate or fee hereunder
shall be conclusive and binding for all purposes, absent manifest error.
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37
(d) Whenever any payment hereunder or under the Notes shall be stated to
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or commitment fee, as the
case may be; provided, however, that, if such extension would cause payment of
interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the immediately
preceding Business Day.
(e) Unless the Administrative Agent shall have received notice from any
Borrower prior to the date on which any payment is due to any Lender hereunder
or under the Notes that such Borrower will not make such payment in full, the
Administrative Agent may assume that such Borrower has made such payment in
full to the Administrative Agent on such date and the Administrative Agent may,
in reliance upon such assumption, cause to be distributed to each such Lender
on such due date an amount equal to the amount then due such Lender. If and to
the extent any Borrower shall not have so made such payment in full to the
Administrative Agent, each such Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Rate.
SECTION 2.11. Taxes. (a) Any and all payments by the Borrowers hereunder
or under the Notes shall be made, in accordance with Section 2.10, free and
clear of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Lender and the Administrative Agent,
overall net income taxes that are imposed by the United States on such Lender
or the Administrative Agent and overall net income taxes (or franchise taxes in
lieu thereof) that are imposed on such Lender or the Administrative Agent by
the state or foreign jurisdiction under the laws of which such Lender or the
Administrative Agent, as the case may be, is organized or any political
subdivision thereof and, in the case of each Lender, overall net income taxes
(or franchise taxes in lieu thereof) that are imposed on such Lender by the
state or foreign jurisdiction of such Lender's Applicable Lending Office or any
political subdivision thereof (all such nonexcluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If the Borrowers shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder or under any Note to any Lender or
the Administrative Agent, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.11) such Lender and
the Administrative Agent, as the case may be, receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrowers
shall make such deductions and (iii) the Borrowers shall pay the full amount
deducted to the relevant taxation authority or other governmental authority in
accordance with applicable law.
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38
(b) In addition, the Borrowers jointly and severally hereby agree to pay
any present or future stamp or documentary taxes or any other excise or
property taxes, charges or similar levies that arise from any payment made
hereunder or under the Notes or from the execution, delivery or registration
of, or otherwise with respect to, this Agreement or the Notes (hereinafter
referred to as "Other Taxes").
(c) The Borrowers jointly and severally indemnify each Lender and the
Administrative Agent for the full amount of Taxes or Other Taxes, and for the
full amount of taxes of any kind imposed by any jurisdiction on amounts payable
under this Section 2.11, paid by such Lender or the Administrative Agent, as
the case may be, and any liability (including penalties, additions to tax,
interest and expenses) arising therefrom or with respect thereto. This
indemnification shall be made within 30 days from the date such Lender or the
Administrative Agent, as the case may be, makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the Borrowers
will furnish to the Administrative Agent, at its address referred to in Section
8.02, appropriate evidence of payment thereof. If no Taxes are payable in
respect of any payment hereunder or under the Notes by the Borrowers through an
account or branch outside the United States or on behalf of the Borrowers by a
payor that is not a United States person, the Borrowers will furnish, or will
cause such payor to furnish, to the Administrative Agent, at such address, a
certificate from the appropriate taxing authority or authorities, or an opinion
of counsel acceptable to the Administrative Agent, in either case stating that
such payment is exempt from or not subject to Taxes. For purposes of this
subsection (d) and subsection (e), the terms "United States" and "United States
person" shall have the meanings specified in Section 7701 of the Internal
Revenue Code.
(e) Each Lender organized under the laws of a jurisdiction outside the
United States shall, on or prior to the date of its execution and delivery of
this Agreement in the case of each Restatement Lender, and on the date of the
Assignment and Acceptance pursuant to which it became a Lender in the case of
each other Lender, and from time to time thereafter if requested in writing by
the Borrowers or the Administrative Agent (but only so long thereafter as such
Lender remains lawfully able to do so), provide the Administrative Agent and
the Borrowers with Internal Revenue Service form 1001 or 4224, as appropriate
(or any successor form prescribed by the Internal Revenue Service), certifying
that such Lender is exempt from or is entitled to a reduced rate of United
States withholding tax on payments under this Agreement or the Notes, or
certifying that the income receivable by such Lender under this Agreement or
the Notes is effectively connected with the conduct of a trade or business of
such Lender in the United States. To the extent a Lender fails to provide to
the Borrowers at the time such Lender first becomes a party to this Agreement
Internal Revenue Service forms that establish a United States withholding tax
rate of zero, withholding tax at the initially required rate shall be
considered excluded from Taxes unless and until such Lender provides the
appropriate form certifying that a lesser rate applies,
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39
whereupon withholding tax at such lesser rate only shall be considered excluded
from Taxes for periods governed by such form. If after the date of an
Assignment and Acceptance pursuant to which a Lender assignee becomes a party
to this Agreement, the Borrowers shall become obligated to gross-up payments to
or to indemnify the assignee pursuant to this Section 2.11, such gross-up or
indemnity obligation to such assignee shall be no greater than the
corresponding obligation the Borrowers would have had absent such Assignment
and Acceptance. If any form or document referred to in this subsection (e)
requires the disclosure of information, other than information necessary to
compute the tax payable and information required on the date hereof by Internal
Revenue Service form 1001 or 4224, that the Lender reasonably considers to be
confidential, the Lender shall give notice thereof to the Borrowers and shall
not be obligated to include in such form or document such confidential
information.
(f) For any period with respect to which a Lender has failed to provide
the Borrowers with the appropriate form described in subsection (e) above
(other than if such failure is due to a change in law occurring after the date
on which a form originally was required to be provided or if such form
otherwise is not required under subsection (e) above), such Lender shall not be
entitled to gross-up or indemnification under subsection (a) or (c) above with
respect to Taxes imposed by the United States; provided, however, that should a
Lender become subject to Taxes because of its failure to deliver a form
required hereunder, the Borrowers shall take such steps as such Lender shall
reasonably request to assist such Lender to recover such Taxes.
(g) Without prejudice to the survival of any other agreement of the
Borrowers hereunder, the agreements and obligations of the Borrowers contained
in this Section 2.11 shall survive the payment in full of principal and
interest hereunder and under the Notes.
SECTION 2.12. Sharing of Payments, Etc. If any Lender shall obtain at any
time any payment (whether voluntary, involuntary, through the exercise of any
right of setoff, or otherwise) on account of the Obligations of the Borrowers
to such Lender hereunder and under the Notes in excess of (a) its ratable share
(according to the proportion of (i) the amount of such Obligations due and
payable to such Lender at such time to (ii) the aggregate amount of the
Obligations of the Borrowers due and payable to all Lenders hereunder and under
the Notes at such time) of payments on account of the Obligations due and
payable to all Lenders hereunder and under the Notes at such time obtained by
all the Lenders at such time or (b) if no such Obligations are due and payable
at such time, its ratable share (according to the proportion of (A) the amount
of such Obligations of the Borrowers to such Lender at such time to (B) the
aggregate amount of the Obligations of the Borrowers to all Lenders hereunder
and under the Notes at such time) of payments on account of the Obligations of
the Borrowers to all Lenders hereunder and under the Notes at such time
obtained by all Lenders at such time, such Lender shall forthwith purchase from
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the other Lenders such participations in the Obligations of the Borrowers
hereunder and under the Notes owing to them as shall be necessary to cause such
purchasing Lender to share the excess payment ratably with each of them;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, such purchase from each other
Lender shall be rescinded and such other Lender shall repay to the purchasing
Lender the purchase price to the extent of such other Lender's ratable share
(according to the proportion of (1) the purchase price paid to such Lender to
(2) the aggregate purchase price paid to all Lenders) of such recovery together
with an amount equal to such Lender's ratable share (according to the
proportion of (x) the amount of such other Lender's required repayment to (y)
the total amount so recovered from the purchasing Lender) of any interest or
other amount paid or payable by the purchasing Lender in respect of the total
amount so recovered. The Borrowers agree that any Lender so purchasing a
participation from another Lender pursuant to this Section 2.12 may, to the
fullest extent permitted by law, exercise all its rights of payment (including
the right of setoff) with respect to such participation as fully as if such
Lender were the direct creditor of the Borrowers in the amount of such
participation.
SECTION 2.13. Letters of Credit. (a) The Letter of Credit Facility.
Pursuant to the Existing Credit Agreement, BNP has issued Letters of Credit in
connection with transactions in the ordinary course of the business of the
Borrowers (such Letters of Credit as are outstanding on the Fourth Restatement
Date under the Existing Credit Agreement and set forth on Schedule II being the
"Existing Letters of Credit") for the account of the Borrowers. Effective as of
the Fourth Restatement Date, each Existing Letter of Credit shall be deemed to
be a Letter of Credit under this Agreement and each "Lender" under the Existing
Credit Agreement will be deemed to have sold and transferred an undivided
interest and participation in respect of the Existing Letters of Credit and
each Lender will be deemed to have purchased and received, without further
action on the part of any party, an undivided interest and participation in
such Existing Letters of Credit, based upon such Lender's Pro Rata Share of its
Revolving Credit Commitment under this Agreement. Any such interest and
participation so purchased shall automatically become an undivided interest and
participation in such Letters of Credit. In addition, the Issuing Bank
severally agrees, on the terms and conditions hereinafter set forth, to issue
Standby Letters of Credit and Trade Letters of Credit for the account of the
Borrowers from time to time on any Business Day from the Fourth Restatement
Date until 31 days before the Termination Date in an amount equal to the lesser
of (i) an aggregate Available Amount for all Letters of Credit (together with
the Existing Letters of Credit, the "Letters of Credit") then outstanding not
to exceed at any time the amount set forth opposite the Issuing Bank's name on
Schedule I under the caption "Letter of Credit Commitment" (such amount being
the Issuing Bank's "Letter of Credit Commitment"), provided that the aggregate
Available Amount of all Letters of Credit outstanding shall in no event exceed
the lesser of $20,000,000 and the amount of the Revolving Credit Facility (the
amount of the Letter of Credit Commitment of the Issuing Bank, as so limited,
being the "Letter of Credit Facility") and (ii) an Available Amount for
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each such Letter of Credit not to exceed the Unused Revolving Credit
Commitments of the Lenders on such Business Day. Each Lender's Revolving Credit
Commitment shall be deemed utilized by an amount equal to such Lender's Pro
Rata Share of the Available Amount of each Letter of Credit then outstanding.
No Letter of Credit shall have an expiration date (including all rights of the
Borrowers or the beneficiary to require renewal) later than the earlier of 30
days before the Termination Date and, in the case of a Standby Letter of
Credit, one year after the date of issuance thereof, but may by its terms be
renewable annually with the consent of the Issuing Bank, and in the case of a
Trade Letter of Credit, 120 days after the date of issuance thereof. Within the
limits of the Letter of Credit Facility and subject to the limits referred to
above, the Borrowers may request the issuance of Letters of Credit under this
Section 2.13(a), repay any Letter of Credit Advances resulting from drawings
thereunder pursuant to Section 2.13(c) and request the issuance of additional
Letters of Credit under this Section 2.13(a).
(b) Request for Issuance. (i) Each Standby Letter of Credit shall be
issued upon notice, given not later than 12:00 noon (New York City time) on the
fifth Business Day prior to the date of the proposed issuance of such Letter of
Credit, by the relevant Borrower to the Issuing Bank, which shall give to the
Administrative Agent prompt notice thereof by telex, telecopier or cable. Each
Trade Letter of Credit shall be issued upon notice given in accordance with the
terms of any separate agreement between the Borrowers and the Issuing Bank
providing for the issuance of such Letter of Credit and containing terms and
conditions not inconsistent with this Agreement (a "Trade Letter of Credit
Agreement"). Each such notice of issuance of a Letter of Credit (a "Notice of
Issuance") shall be by telex, telecopier or cable, specifying therein the
requested (A) date of such issuance (which shall be a Business Day), (B)
Available Amount of such Letter of Credit, (C) expiration date of such Letter
of Credit, (D) name and address of the beneficiary of such Letter of Credit,
(E) form of such Letter of Credit and (F) aggregate Available Amount available
to be drawn under all Letters of Credit then outstanding. If the requested form
of such Standby Letter of Credit or Trade Letter of Credit is acceptable to the
Issuing Bank in its reasonable discretion, the Issuing Bank will, upon
fulfillment of the applicable conditions set forth in Article III, make such
Standby Letter of Credit or Trade Letter of Credit available to the relevant
Borrower at its office referred to in Section 8.02 or as otherwise agreed with
the relevant Borrower in connection with such issuance.
(ii) The Issuing Bank shall furnish (A) to the Administrative Agent on the
first Business Day of each week, a written report summarizing issuance and
expiration dates of Letters of Credit issued by the Issuing Bank during the
previous week and drawings during such week under all Letters of Credit issued
by the Issuing Bank, (B) to the Administrative Agent and each Lender on the
first Business Day of each calendar quarter, a written report summarizing
issuance and expiration dates of Letters of Credit issued by the Issuing Bank
during the preceding calendar quarter and drawings during such calendar quarter
under all Letters of Credit issued by the Issuing Bank and a written report
setting
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forth the average daily aggregate Available Amount during the preceding
calendar quarter of all Letters of Credit issued by the Issuing Bank.
(c) Drawing and Reimbursement. The payment by the Issuing Bank of a draft
drawn under any Letter of Credit shall constitute for purposes of this
Agreement the making by the Issuing Bank of a Letter of Credit Advance, which
shall be a Base Rate Advance, in the amount of such draft. Upon demand by the
Issuing Bank, each other Lender shall purchase from the Issuing Bank, and the
Issuing Bank shall sell and assign to each such other Lender, such other
Lender's Pro Rata Share of such outstanding Letter of Credit Advance as of the
date of such purchase, by making available for the account of its Applicable
Lending Office to the Administrative Agent for the account of the Issuing Bank,
by deposit to the Administrative Agent's Account, in same day funds, an amount
equal to the portion of the outstanding principal amount of such Letter of
Credit Advance to be purchased by such Lender. Each Lender agrees to purchase
its Pro Rata Share of an outstanding Letter of Credit Advance on (i) the
Business Day on which demand therefor is made by the Issuing Bank; provided
that notice of such demand is given not later than 12:00 noon (New York City
time) on such Business Day or (ii) the first Business Day next succeeding such
demand if notice of such demand is given after such time. Upon any such
assignment by the Issuing Bank to any other Lender of a portion of a Letter of
Credit Advance, the Issuing Bank represents and warrants to such Lender that
the Issuing Bank is the legal and beneficial owner of such interest being
assigned by it, but makes no other representation or warranty and assumes no
responsibility with respect to such Letter of Credit Advance, the Loan
Documents or any Loan Party. If and to the extent that any Lender shall not
have so made the amount of such Letter of Credit Advance available to the
Administrative Agent, such Lender agrees to pay to the Administrative Agent
forthwith on demand such amount, together with interest thereon, for each day
from the date of demand by the Issuing Bank until the date such amount is paid
to the Administrative Agent, at the Federal Funds Rate. If such Lender shall
pay to the Administrative Agent such amount for the account of the Issuing
Bank, such amount so paid in respect of principal shall constitute a Letter of
Credit Advance by such Lender for purposes of this Agreement and the
outstanding principal amount of the Letter of Credit Advance made by the
Issuing Bank shall be reduced by such amount.
(d) Indemnification; Obligations Absolute. (i) The Borrowers jointly and
severally hereby agree to indemnify the Issuing Bank, the Administrative Agent
and each other Lender from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including, without
limitation, reasonable fees and expenses of counsel) that the Issuing Bank, the
Administrative Agent or such other Lender may incur or be subject to as a
consequence (direct, indirect or otherwise) of (i) the issuance of any Letter
of Credit or (ii) any action or proceeding relating to a court order,
injunction or other process or decree restraining or seeking to restrain the
Issuing Bank from making any Letter of Credit Advance, except to the extent
such claim, damage, loss, liability or expense is found in a final,
nonappealable judgment by a court of competent jurisdiction to have
<PAGE> 48
43
resulted from the Issuing Bank's, the Administrative Agent's or such other
Lender's gross negligence or willful misconduct.
(ii) In furtherance and not in limitation of the foregoing, the
Obligations of the Borrowers under this Agreement, any Trade Letter of Credit
Agreement and any other agreement or instrument relating to any Letter of
Credit (collectively, the "L/C Related Documents") shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of such
L/C Related Document under all circumstances, including, without limitation,
the following circumstances:
(A) any lack of validity or enforceability of any of the L/C Related
Documents;
(B) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations of the Borrowers in respect
of any L/C Related Document or any other amendment or waiver of or any
consent to departure from all or any of the L/C Related Documents;
(C) the existence of any claim, setoff, defense or other right that
the Borrowers may have at any time against any beneficiary or any
transferee of a Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), the Issuing Bank or any
other Person, whether in connection with the transactions contemplated by
the L/C Related Documents or any unrelated transaction;
(D) any statement or any other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any
respect;
(E) payment by the Issuing Bank under any Letter of Credit against
presentation of a draft or certificate that does not comply with the terms
of such Letter of Credit;
(F) any exchange, release or nonperfection of any collateral or any
release, amendment or waiver of or consent to departure from the Fourth
Amended and Restated Parent Guaranty, the Fourth Amended and Restated
Subsidiary Guaranty or any other guaranty, for all or any of the
Obligations of the Borrowers in respect of the L/C Related Documents; or
(G) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including, without limitation, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the
<PAGE> 49
44
Borrowers or a guarantor (including, without limitation, GNCI or any
Subsidiary Guarantor).
SECTION 2.14. Use of Proceeds. The proceeds of the Advances shall be
available (and the Borrowers agree that they shall use such proceeds) in order
to (i) pay transaction fees and expenses in connection with the transactions
contemplated hereby, (ii) provide funds for the financing of capital
expenditures and acquisitions of businesses or product lines in the Health Care
Business and (iii) provide funds for other general corporate purposes permitted
by this Agreement.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Fourth Restatement Date. The
amendment and restatement of the Existing Credit Agreement pursuant hereto
shall become effective on and as of the date (the "Fourth Restatement Date"),
on which each of the following conditions precedent shall have been satisfied:
(a) The Assignment Agreement shall be in full force and effect and shall
not have been terminated and, pursuant thereto, the Commitments and Advances
(as defined in the Existing Credit Agreement) of each Existing Lender shall
have been sold and assigned to the Lenders hereunder on the terms and in the
amounts set forth in the Assignment Agreement and all accrued interest and
fees shall have been paid to the Existing Lenders.
(b) No Material Adverse Change shall have occurred since February 3, 1996.
(c) There shall exist no action, suit, investigation, litigation or
proceeding affecting any Loan Party or any of their properties, including
any Environmental Action, pending or to the best of the Borrowers'
knowledge, threatened before any court, governmental agency or arbitrator
that (i) could reasonably be expected to have a Material Adverse Effect, or
(ii) purports to affect the legality, validity or enforceability of this
Agreement, any Note, any other Loan Document, any Related Document or the
consummation of the transactions contemplated hereby.
(d) The Borrowers shall have paid to the Administrative Agent all
reasonable accrued fees of the Agents and the Restatement Lenders (including
the upfront fee to be paid with respect to this Agreement and the accrued
fees and expenses of counsel to the Administrative Agent).
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45
(e) All governmental and third party consents and approvals necessary in
connection with this Agreement shall have been obtained (without the
imposition of any conditions other than those that are reasonably acceptable
to the Administrative Agent) and shall remain in effect, and all applicable
waiting periods shall have expired without any action being taken by any
competent authority and no law or regulation shall be applicable, in the
reasonable judgment of the Administrative Agent, that restrains, prevents or
imposes adverse conditions upon this Agreement or any related transactions.
(f) The Administrative Agent shall have received on or before the Fourth
Restatement Date the following, each dated the Fourth Restatement Date
(unless otherwise specified), in form and substance reasonably satisfactory
to the Administrative Agent (unless otherwise specified) and (except for the
Notes) in sufficient copies for each Lender:
(i) The Notes to the order of the Lenders.
(ii) Certified copies of the resolutions of the Board of Directors of
each Borrower and of each other Loan Party approving this Agreement, the
Notes, each other Loan Document and each Related Document to which it is
or is to be a party, and of all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to this
Agreement, the Notes, each other Loan Document and each Related Document.
(iii) A copy of the charter of each Borrower and of each other Loan
Party and each amendment thereto, certified (as of a date reasonably near
the date of the initial Borrowing) by the Secretary of State of the State
of their respective states of incorporation or organization as being a
true and correct copy thereof.
(iv) A copy of a certificate of the Secretary of State of the State
of their respective states of incorporation or organization, dated
reasonably near the Fourth Restatement Date, listing the charter or other
organizational documents of each Borrower and of each other Loan Party and
each amendment thereto on file in his office and certifying that (A) such
amendments are the only amendments to the Borrowers' or such other Loan
Party's charter or other organizational documents on file in his office,
(B) each Borrower and each other Loan Party have paid all franchise taxes
to the date of such certificate and (C) each Borrower and each other Loan
Party are duly incorporated or organized and in good standing under the
laws of the State of their respective states of incorporation or
organization.
<PAGE> 51
46
(v) A copy of a certificate of the Secretary of State of the
Commonwealth of Pennsylvania, dated reasonably near the Fourth Restatement
Date, stating that GNCI is duly qualified and in good standing as a
foreign corporation in such State and has filed all annual reports
required to be filed to the date of such certificate.
(vi) A certificate of each of the Borrowers and each other Loan
Party, signed on behalf of each Borrower or such other Loan Party by its
President or a Vice President and its Secretary or any Assistant
Secretary, dated the Fourth Restatement Date (the statements made in such
certificate shall be true on and as of the Fourth Restatement Date),
certifying as to (A) the absence of any amendments to the charter or other
organizational documents of such Borrower or such other Loan Party since
the date of the Secretary of State's certificate referred to in Section
3.01(f)(iv), (B) the truth and accuracy of the bylaws of such Borrower or
such other Loan Party as in effect on the Fourth Restatement Date (a copy
of which shall be attached to such certificate), (C) the due incorporation
or organization and good standing of such Borrower or such other Loan
Party as a corporation or business trust organized under the laws of the
State of its respective state of incorporation or organization, and the
absence of any proceeding for the dissolution or liquidation of such
Borrower or such other Loan Party, (D) the truth and accuracy of the
representations and warranties contained in the Loan Documents as though
made on and as of the Fourth Restatement Date and (E) the absence of any
event occurring and continuing, or resulting from the initial Borrowing,
that constitutes a Default.
(vii) A certificate of the Secretary or an Assistant Secretary of
each Borrower and of each other Loan Party certifying the names and true
signatures of the officers of such Borrower and of such other Loan Party
authorized to sign this Agreement, the Notes, each other Loan Document and
each Related Document to which it is or is to be parties and the other
documents to be delivered hereunder and thereunder.
(viii) An amended and restated guaranty in substantially the form of
Exhibit D hereto (as amended, supplemented or otherwise modified from time
to time in accordance with its terms, the "Fourth Amended and Restated
Parent Guaranty"), duly executed by GNCI and GNI and an amended and
restated guaranty in substantially the form of Exhibit E hereto (as
amended, supplemented or otherwise modified from time to time in
accordance with its terms, the "Fourth Amended and Restated Subsidiary
Guaranty"), duly executed by each Subsidiary Guarantor.
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47
(ix) Certified copies of each of the Related Documents, duly executed
by the parties thereto and in form and substance reasonably satisfactory
to the Administrative Agent, together with all agreements, instruments and
other documents delivered in connection therewith.
(x) Such financial, business and other information regarding the
Borrowers and each other Loan Party as the Administrative Agent shall have
reasonably requested, including, without limitation, (A) information as to
possible contingent liabilities, tax matters, environmental matters,
obligations under ERISA and under Plans, Multiemployer Plans, Welfare
Plans and collective bargaining agreements, (B) annual audited financial
statements for the Fiscal Year ended February 3, 1996 of GNCI, (C) interim
financial statements dated the end of the most recent Fiscal Quarter for
which financial statements of GNCI are available and (D) forecasts
prepared by management of GNCI, in form and substance satisfactory to the
Administrative Agent, of balance sheets, income statements and cash flow
statements on an annual basis through Fiscal Year 2001.
(xi) Certificates from the chief financial officer of GNCI, in form
and substance satisfactory to the Administrative Agent, attesting to the
Solvency of GNCI and its Subsidiaries, taken as a whole, immediately after
giving effect to the transactions contemplated hereby.
(xii) A letter, in form and substance reasonably satisfactory to the
Administrative Agent, from GNCI and the Borrowers to Deloitte & Touche,
its independent certified public accountants, advising such accountants
that the Administrative Agent and the Lenders have been authorized to
exercise all rights of GNCI and each Borrower to require such accountants
to disclose any and all financial statements and any other information of
any kind that they may have with respect to GNCI and each Borrower and its
Subsidiaries and directing such accountants to comply with any reasonable
request of the Administrative Agent or any Lender for such information.
(xiii) A favorable opinion of Hutchins, Wheeler & Dittmar, A
Professional Corporation, counsel for GNCI and each Borrower, in form and
substance satisfactory to the Administrative Agent, and addressing such
other matters as any Lender through the Administrative Agent may
reasonably request.
(xiv) A favorable opinion of in-house counsel of the Loan Parties
addressing issues under the laws of the Commonwealth of Pennsylvania, in
form and substance satisfactory to the Administrative Agent, and
addressing
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48
such other matters as any Lender through the Administrative Agent may
reasonably request.
(xv) A favorable opinion of Shearman & Sterling, counsel for the
Administrative Agent, in form and substance satisfactory to the
Administrative Agent.
SECTION 3.02. Conditions Precedent to Each Borrowing and Issuance. The
obligation of each Appropriate Lender to make an Advance (other than a Letter
of Credit Advance and other than a Swing Line Advance made by a Lender pursuant
to Section 2.13(c) and Section 2.02(b), respectively) on the occasion of each
Borrowing (including the initial Borrowing), and the right of the Borrowers to
request a Swing Line Borrowing or the issuance of Letters of Credit, shall be
subject to the further conditions precedent that on the date of such Borrowing
or issuance (a) the following statements shall be true (and each of the giving
of the applicable Notice of Borrowing, Notice of Swing Line Borrowing or Notice
of Issuance and the acceptance by the relevant Borrower of the proceeds of such
Borrowing or such Letter of Credit shall constitute a representation and
warranty by such Borrower that on the date of such Borrowing or issuance such
statements are true):
(i) the representations and warranties contained in each Loan Document are
correct on and as of the date of such Borrowing or issuance, before and
after giving effect to such Borrowing or issuance and to the application of
the proceeds therefrom, as though made on and as of such date (other than
any such representations or warranties that, by their terms, are made as of
a date other than the date of such Borrowing or issuance); and
(ii) no event has occurred and is continuing, or would result from such
Borrowing or issuance or from the application of the proceeds therefrom,
that constitutes a Default;
and (b) the Administrative Agent shall have received such other approvals,
opinions or documents as any Appropriate Lender through the Administrative
Agent may reasonably request.
SECTION 3.03. Determinations Under Section 3.01. For purposes of
determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to the Lenders unless
an officer of the Administrative Agent responsible for the transactions
contemplated by the Loan Documents shall have received notice from such Lender
prior to the initial Borrowing specifying its objection thereto and such Lender
shall
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49
not have made available to the Administrative Agent such Lender's ratable
portion of such Borrowing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrowers. Each
Borrower represents and warrants as follows:
(a) Each Loan Party other than GND (i) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation, (ii) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which it owns or leases property
or in which the conduct of its business requires it to so qualify or be
licensed, except where the failure to so qualify or be licensed would not
have a Material Adverse Effect and (iii) has all requisite corporate power
and authority to own or lease and operate its properties and to carry on its
business as now conducted and as proposed to be conducted. All of the
outstanding capital stock of GNCI has been validly issued, is fully paid and
nonassessable. All of the outstanding capital stock of GNI has been validly
issued, is fully paid and nonassessable and is owned (other than the PIK
Preferred Stock), by GNCI, free and clear of all Liens. All of the
outstanding capital stock of GNC has been validly issued, is fully paid and
nonassessable and is owned by GNI, free and clear of all Liens. GND (i) is a
business trust duly organized and validly existing under the laws of the
Commonwealth of Pennsylvania, (ii) is duly qualified as a foreign business
trust in each other jurisdiction in which it owns or leases property or in
which the conduct of its business requires it to so qualify or be licensed,
except where the failure to so qualify or be licensed would not have a
Material Adverse Effect and (iii) has all requisite power and authority to
own or lease and operate its properties and to carry on its business as now
conducted and as proposed to be conducted. The instrument organizing GND as
a business trust has been filed in the Department of State of the
Commonwealth of Pennsylvania and the sole beneficiaries of GND are GNS and
GNIC.
(b) Set forth on Schedule 4.01(b) hereto is a complete and accurate list
as of the Fourth Restatement Date of all Subsidiaries of each Loan Party,
showing as of the Fourth Restatement Date (as applicable and as to each such
Subsidiary) the jurisdiction of its incorporation or organization, the
number of shares of each class of capital stock authorized or the number of
certificates of beneficial ownership authorized, and the number outstanding,
on the Fourth Restatement Date and the percentage of the outstanding shares
of each such class or certificates of beneficial
<PAGE> 55
50
ownership owned (directly or indirectly) by such Loan Party and the number
of shares covered by all outstanding options, warrants, rights of conversion
or purchase and similar rights at the Fourth Restatement Date. All of the
outstanding capital stock or outstanding certificates of beneficial
ownership of each such Subsidiary have been validly issued, is fully paid
and nonassessable, as applicable, and is owned by such Loan Party or one or
more of its Subsidiaries free and clear of all Liens. Each such Subsidiary
(i) is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, (ii) is duly
qualified and in good standing as a foreign corporation in each other
jurisdiction in which it owns or leases property or in which the conduct of
its business requires it to so qualify or be licensed, except where the
failure to so qualify or be licensed would not have a Material Adverse
Effect and (iii) has all requisite corporate power and authority to own or
lease and operate its properties and to carry on its business as now
conducted and as proposed to be conducted.
(c) The execution, delivery and performance by each Loan Party other than
GND of this Agreement, the Notes, each other Loan Document and each Related
Document to which it is or is to be a party, and the consummation of the
transactions contemplated hereby, are within such Loan Party's corporate
powers, have been duly authorized by all necessary corporate action, and do
not (i) contravene such Loan Party's charter or bylaws, (ii) violate any law
(including, without limitation, the Securities Exchange Act and the
Racketeer Influenced and Corrupt Organizations Chapter of the Organized
Crime Control Act of 1970), rule, regulation (including, without limitation,
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System), order, writ, judgment, injunction, decree, determination or award,
(iii) conflict with or result in the breach of, or constitute a default
under, any contract, loan agreement, indenture, mortgage, deed of trust,
lease or other instrument binding on or affecting such Loan Party, any of
its Subsidiaries or any of their properties or (iv) result in or require the
creation or imposition of any Lien upon or with respect to any of the
properties of such Loan Party or any of its Subsidiaries. The execution,
delivery and performance by GND of each Loan Document and each Related
Document to which it is or is to be a party, and the consummation of the
transactions contemplated hereby, are within the powers of GND, have been
duly authorized by all necessary action by and consent of its trustees, and
do not (i) contravene GND's organizational documents or bylaws, (ii) violate
any law (including, without limitation, the Securities Exchange Act and the
Racketeer Influenced and Corrupt Organizations Chapter of the Organized
Crime Control Act of 1970), rule, regulation (including, without limitation,
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System), order, writ, judgment, injunction, decree, determination or award,
(iii) conflict with or result in the breach of, or constitute a default
under, any contract, loan agreement, indenture, mortgage, deed of trust,
lease or other instrument binding on or affecting such Loan Party, any
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51
of its Subsidiaries or any of their properties or (iv) result in or require
the creation or imposition of any Lien upon or with respect to any of the
properties of such Loan Party or any of its Subsidiaries. No Loan Party or
any of its Subsidiaries is in violation of any such law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award or in
breach of any such contract, loan agreement, indenture, mortgage, deed of
trust, lease or other instrument, the violation or breach of which could
have a Material Adverse Effect.
(d) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or any other
third party is required for (i) the due execution, delivery, recordation,
filing or performance by any Loan Party of this Agreement, the Notes or any
other Loan Document or any Related Document to which it is or is to be a
party, or for the consummation of the transactions contemplated hereby, or
(ii) the exercise by any Agent or any Lender of its rights under the Loan
Documents.
(e) This Agreement has been, and each of the Notes, each other Loan
Document and each Related Document when delivered hereunder will have been,
duly executed and delivered by each Loan Party thereto. This Agreement is,
and each of the Notes, each other Loan Document and each Related Document
when delivered hereunder will be, the legal, valid and binding obligation of
each Loan Party party thereto, enforceable against such Loan Party in
accordance with its terms.
(f) The audited Consolidated balance sheet of GNCI and its Subsidiaries as
at February 3, 1996, and the related statements of income and cash flow of
GNCI and its Subsidiaries for the Fiscal Year then ended, accompanied by an
opinion of Deloitte & Touche, independent public accountants, and the
unaudited Consolidated balance sheet of GNCI and its Subsidiaries as at its
most recent ended Fiscal Quarter, and the related statements of income and
cash flow of GNCI and its Subsidiaries for the period covering February 3,
1996 to the end of its most recently ended Fiscal Quarter for which
financial statements are available, copies of which have been furnished to
each Lender, fairly present, subject, in the case of such balance sheet as
at its most recent ended Fiscal Quarter, and such statement of income and
cash flow for the period covering February 3, 1996 to the end of its most
recently ended Fiscal Quarter, to year-end audit adjustments and to the
absence of footnote disclosure, the financial condition of GNCI and its
Subsidiaries as at such dates and the Consolidated results of the operations
of GNCI and its Subsidiaries for the periods ended on such dates, all in
accordance with generally accepted accounting principles applied on a
consistent basis and on a basis consistent with the current practice of GNCI
and its Subsidiaries; and since February 3, 1996, there has been no Material
Adverse Change.
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52
(g) The Consolidated forecasted balance sheets, income statements and cash
flow statements of GNCI and its Subsidiaries delivered to the Lenders
pursuant to Section 3.01(f)(x) were prepared in good faith on the basis of
the assumptions stated therein, which assumptions were believed to be
reasonable in the light of conditions existing at the time of delivery of
such forecasts, and represented, at the time of delivery, GNCI's current
estimate of its future financial performance, it being recognized that such
forecasts do not constitute a warranty as to the future performance of GNCI
and its Subsidiaries and that actual results may vary from forecasted
results.
(h) No information, exhibit or report (including, without limitation, any
financial information, but excluding any forecasts referred to in clause (g)
above) furnished by or on behalf of any Loan Party to any Agent or any
Lender in connection with the negotiation of the Loan Documents or pursuant
to the terms of the Loan Documents contained any untrue statement of a
material fact or, taken as a whole, omitted to state a material fact
necessary to make the statements made therein not misleading, in each case,
as of the Fourth Restatement Date.
(i) There is no action, suit, investigation, litigation or proceeding
affecting any Loan Party, any of their Subsidiaries or any of their
properties, including any Environmental Action, pending or, to the best of
the Borrowers' knowledge, threatened before any court, governmental agency
or arbitrator that (i) would be reasonably likely to have a Material Adverse
Effect or (ii) purports to affect the legality, validity or enforceability
of this Agreement, any Note, any other Loan Document or any Related Document
or the consummation of the transactions contemplated hereby.
(j) Following application of the proceeds of each Advance, not more than
25% of the value of the assets (either of each Borrower only or of each
Borrower and its Subsidiaries on a Consolidated basis) subject to the
provisions of Section 5.02(a) or 5.02(d) or subject to any restriction
contained in any other agreement or instrument between such Borrower and any
Lender or any Affiliate of any Lender relating to Indebtedness and within
the scope of Section 6.01(d) will be Margin Stock.
(k) Set forth on Schedule 4.01(k) is a complete and accurate list of all
Plans, Multiemployer Plans and Welfare Plans with respect to any employees
of any Loan Party or any of their Subsidiaries. Neither any Loan Party nor
any of its ERISA Affiliates maintains or has any obligation to contribute to
any Plan or Multiemployer Plan.
(l) No ERISA Event has occurred or is reasonably expected to occur with
respect to any Plan of any Loan Party or any of its ERISA Affiliates.
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53
(m) Schedule B (Actuarial Information) to the most recent annual report
(Form 5500 Series) required to be filed with the Internal Revenue Service
for each Plan has been filed and a copy thereof has been furnished to the
Administrative Agent. Each such Schedule B is substantially complete and
accurate and fairly presents the funding status of such Plan, and since the
date of such Schedule B there has been no material adverse change in such
funding status.
(n) Neither any Loan Party nor any of its ERISA Affiliates has incurred or
is reasonably expected to incur any Withdrawal Liability to any
Multiemployer Plan exceeding $500,000 or requiring payments exceeding
$250,000 per annum.
(o) Neither any Loan Party nor any of its ERISA Affiliates has been
notified by the sponsor of a Multiemployer Plan of any Loan Party or any of
its ERISA Affiliates that such Multiemployer Plan is in reorganization or
has been terminated, within the meaning of Title IV of ERISA, and no such
Multiemployer Plan is reasonably expected to be in reorganization or to be
terminated, within the meaning of Title IV of ERISA.
(p) The aggregate annualized cost (including, without limitation, the cost
of insurance premiums), if any, with respect to post-retirement benefits
under Welfare Plans for which the Loan Parties and their Subsidiaries are
liable does not exceed $250,000.
(q) Neither the business nor the properties of any Loan Party or any of
its Subsidiaries are affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo,
act of God or of the public enemy or other casualty (whether or not covered
by insurance) that would be reasonably likely to have a Material Adverse
Effect.
(r) Except as set forth on Schedule 4.01(r), the operations and properties
of each Loan Party and each of its Subsidiaries comply in all material
respects with all Environmental Laws; all material Environmental Permits
have been obtained and are in effect for the operations and properties of
each Loan Party and its Subsidiaries; each Loan Party and its Subsidiaries
are in compliance in all material respects with all such Environmental
Permits; and no circumstances exist that could (i) form the basis of an
Environmental Action against any Loan Party or any of its Subsidiaries or
any of their properties that would be reasonably likely to have a Material
Adverse Effect or (ii) cause any such property to be subject to any material
restrictions on ownership, occupancy, use or transferability under any
Environmental Law.
(s) Except as set forth on Schedule 4.01(s), none of the properties of any
Loan Party or any of its Subsidiaries is listed or to the knowledge of any
Loan Party
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54
proposed for listing on the National Priorities List under CERCLA or on the
Comprehensive Environmental Response, Compensation and Liability Information
System maintained by the Environmental Protection Agency or any analogous
state list of sites requiring investigation or cleanup, or is adjacent to any
such property; and no underground storage tanks, as such term is defined in
42 U.S.C. Section 6991, are located on any property of any Loan Party or any
of its Subsidiaries or, to the best of its knowledge, on any adjoining
property.
(t) Except as set forth on Schedule 4.01(t), neither any Loan Party nor
any of its Subsidiaries has transported or arranged for the transportation
of any Hazardous Materials to any location that is listed or proposed for
listing on the National Priorities List under CERCLA or on the Comprehensive
Environmental Response, Compensation and Liability Information System
maintained by the Environmental Protection Agency or any analogous state
list; Hazardous Materials have not been generated, used, treated, handled,
stored or disposed of on, or released or transported to or from, any
property of any Loan Party or any of its Subsidiaries or, to the best of its
knowledge, any adjoining property, except in material compliance with all
Environmental Laws and Environmental Permits; and all other wastes generated
at any such properties have been disposed of in compliance with all
Environmental Laws and Environmental Permits.
(u) Each Loan Party and each of its Subsidiaries have filed, have caused
to be filed or have been included in all tax returns (federal, state, local
and foreign) required to be filed or, in the case of income taxes, required
to be filed and where the failure to do so would cause the imposition of a
penalty or interest, and in each case have paid all taxes shown thereon to
be due, together with applicable interest and penalties.
(v) Neither any Loan Party nor any of its Subsidiaries is an "investment
company," an "affiliated person" of an "investment company", or a "promoter"
or "principal underwriter" for an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended. Neither the
making of any Advances nor the application of the proceeds therefrom or
repayment thereof by the Borrowers, nor the consummation of the transactions
contemplated hereby, will violate any provision of such Act or any rule,
regulation or order of the SEC thereunder.
(w) Each Loan Party is Solvent after giving effect to the transactions
contemplated hereby.
(x) Each Material Contract (i) has been duly authorized, executed and
delivered by each Loan Party party thereto and, to the best of the
Borrowers'
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55
knowledge, by all other parties thereto, is in full force and effect and is
binding upon and enforceable against all Loan Parties party thereto and to
the best of the Borrowers' knowledge, all other parties thereto in
accordance with its terms, (ii) has not been otherwise amended or modified
in such a manner that could be reasonably expected to materially adversely
affect the interest or rights of the Agents or the Lenders and (iii) there
exists no default under any Material Contract by any Loan Party or, to the
best of the Borrowers' knowledge, any other party thereto that could be
reasonably expected to materially adversely affect the interest or rights of
the Agents or the Lenders in any manner.
ARTICLE V
COVENANTS OF THE BORROWERS
SECTION 5.01. Affirmative Covenants. So long as any Advance shall remain
unpaid, any Letter of Credit shall be outstanding or any Lender shall have any
Commitment hereunder, each Borrower will:
(a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries
to comply, in all material respects, with all applicable laws (including,
without limitation, Environmental Laws), rules, regulations and orders, such
compliance to include, without limitation, compliance with ERISA and the
Racketeer Influenced and Corrupt Organizations Chapter of the Organized
Crime Control Act of 1970.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its
Subsidiaries to pay and discharge, before the same shall become delinquent,
(i) all taxes, assessments and governmental charges or levies imposed upon
it or upon its property and (ii) all lawful claims that, if unpaid, might by
law become a Lien upon its property, which in any case exceed in the
aggregate $500,000; provided, however, that neither the Borrowers nor any of
their respective Subsidiaries shall be required to pay or discharge any such
tax, assessment, charge, levy or claim that is being contested in good faith
and by proper proceedings, diligently pursued, and as to which appropriate
reserves are being maintained, unless and until any Lien resulting therefrom
securing Indebtedness in excess of $500,000 in the aggregate attaches to its
property and becomes enforceable against its other creditors.
(c) Compliance with Environmental Laws. Comply, and cause each of its
Subsidiaries and all lessees and other Persons occupying its properties to
comply, in all material respects, with all Environmental Laws and
Environmental Permits applicable to its operations and properties; obtain
and renew all Environmental
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56
Permits necessary for its operations and properties; and conduct, and cause
each of its Subsidiaries to conduct, any investigation, study, sampling and
testing, and undertake any cleanup, removal, remedial or other action
necessary to remove and clean up all Hazardous Materials from any of its
properties, in accordance with the requirements of all Environmental Laws;
provided, however, that neither Borrower nor any of its Subsidiaries shall
be required to undertake any such cleanup, removal, remedial or other action
to the extent that its obligation to do so is being contested in good faith
and by proper proceedings, diligently pursued, and as to which appropriate
reserves are being maintained with respect to such circumstances.
(d) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries
to maintain, insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risks as is usually carried
by companies engaged in similar businesses and owning similar properties in
the same general areas in which such Borrower or such Subsidiary operates.
(e) Preservation of Corporate or Business Trust Existence, Etc. Preserve
and maintain, and cause each of its Subsidiaries to preserve and maintain,
as applicable, its corporate or business trust existence, rights (charter
and statutory) and franchises; provided, however, that the Subsidiaries of
each such Borrower may consummate any merger or consolidation permitted
under Section 5.02(c).
(f) Visitation Rights. At any reasonable time and from time to time upon
reasonable notice to a Borrower, permit the Administrative Agent or any of
the Lenders, or any agents or representatives thereof, to examine and make
copies of and abstracts from the records and books of account of, and visit
the properties of, such Borrower and any of its Subsidiaries, and to discuss
the affairs, finances and accounts of such Borrower and any of its
Subsidiaries with any of their officers, directors or trustees and with
their independent certified public accountants; provided that such Borrower
and any such Subsidiary shall have the right to have a representative of
such Borrower and such Subsidiary present during any discussions with their
independent public accountants.
(g) Keeping of Books. Keep, and cause each of its Subsidiaries to keep,
proper books of record and account, in which full and correct entries shall
be made of all financial transactions and the assets and business of such
Borrower and each such Subsidiary in accordance with GAAP.
(h) Maintenance of Properties, Etc. Maintain and preserve, and cause each
of its Subsidiaries to maintain and preserve, all of its properties that are
used or useful in the conduct of its business in good working order and
condition, ordinary wear and tear excepted.
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57
(i) Compliance with Terms of Leaseholds. Make all payments and otherwise
perform in all material respects all obligations in respect of all leases of
real property, in each case except to the extent that the failure to so act
could not reasonably be expected to have a Material Adverse Effect.
(j) Performance of Related Documents. (i) Perform and observe in all
material respects all the terms and provisions of each Related Document to
be performed or observed by it, maintain each such Related Document in full
force and effect and enforce in all material respects each such Related
Document in accordance with its terms, in each case except to the extent
that the failure to so act could not reasonably be expected to materially
adversely affect the interest or rights of the Administrative Agent or the
Lenders in any manner and take all such action to such end as may be from
time to time reasonably requested by the Administrative Agent and (ii) upon
the reasonable request of the Administrative Agent, make to each other party
to each such Related Document such demands and requests for information and
reports or for action as such Borrower is entitled to make under such
Related Document, and cause each of its Subsidiaries to do so.
(k) Performance of Material Contracts. (i) Perform and observe in all
material respects all the terms and provisions of each Material Contract to
be performed or observed by it, maintain each such Material Contract in full
force and effect and enforce in all material respects each such Material
Contract in accordance with its terms, in each case except to the extent
that the failure to so act could not reasonably be expected to materially
adversely affect the interest or rights of the Administrative Agent or the
Lenders in any manner and take all such action to such end as may be from
time to time reasonably requested by the Administrative Agent and (ii) upon
the reasonable request of the Administrative Agent, make to each other party
to each such Material Contract such demands and requests for information and
reports or for action as such Borrower is entitled to make under such
Material Contract, and cause each of its Subsidiaries to do so.
(l) Transactions with Affiliates. Conduct, and cause each of its
Subsidiaries to conduct, all transactions otherwise permitted under the Loan
Documents with any of their Affiliates on terms that are fair and reasonable
and no less favorable to such Borrower or such Subsidiary than it would
obtain in a comparable arm's-length transaction with a Person not an
Affiliate; provided, however, that the Borrowers and their respective
Subsidiaries may make payments required under the Tax Sharing Agreement and
the foregoing limitations shall not apply to transactions between or among
Loan Parties.
(m) Additional Loan Parties. Cause any Subsidiary (other than a Foreign
Subsidiary) of either GNC or GNI that has, either as at the end of any
Rolling Period
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58
or, in connection with any Investments permitted by Section 5.02(e)(i),
after giving effect to such Investment on a pro forma basis as at the end of
the immediately prior Rolling Period, EBITDA equal to or greater than 5% of
the Consolidated EBITDA of GNCI and its Subsidiaries, to execute and deliver
to the Administrative Agent as promptly as practicable (A) a guaranty
substantially in the form of Exhibit E hereto, and (B) such other documents,
certificates or instruments in connection with this Agreement as the
Administrative Agent may reasonably request, in each case in form and
substance reasonably satisfactory to the Administrative Agent, and to take
all such other actions that may be necessary or that the Administrative
Agent may deem reasonably desirable to enable the Administrative Agent to
exercise and enforce its rights and remedies thereunder; provided, however,
that with respect to any Person that becomes a Subsidiary (other than a
Foreign Subsidiary) in connection with a tender offer which is followed by a
back-end merger pursuant to a signed merger agreement, the Borrowers shall
cause such Subsidiary to comply with this Section 5.01(m) on the date that
the back-end merger becomes effective.
SECTION 5.02. Negative Covenants. So long as any Advance shall remain
unpaid, any Letter of Credit shall be outstanding or any Lender shall have any
Commitment hereunder, neither Borrower will:
(a) Liens, Etc. On and after the date of the initial Borrowing hereunder,
create, incur, assume or suffer to exist, or permit any of its Subsidiaries
to create, incur, assume or suffer to exist, any Lien on or with respect to
any of its properties of any character (including, without limitation,
accounts) whether now owned or hereafter acquired, or sign or file, or
permit any of its Subsidiaries to sign or file, under the Uniform Commercial
Code of any jurisdiction, a financing statement that names such Borrower or
any of its Subsidiaries as debtor, or sign, or permit any of its
Subsidiaries to sign, any security agreement authorizing any secured party
thereunder to file such financing statement, or assign, or permit any of its
Subsidiaries to assign, any accounts or other right to receive income,
excluding, however, from the operation of the foregoing restrictions the
following:
(i) Permitted Liens;
(ii) purchase money Liens upon or in one or more items of personal or
real property acquired or held by such Borrower or any of its Subsidiaries
in the ordinary course of business to secure the purchase price of such
property or to secure Indebtedness incurred solely for the purpose of
financing the acquisition of any such property to be subject to such
Liens, or Liens existing on any such property at the time of acquisition,
or extensions, renewals or replacements of any of the foregoing for the
same or a lesser amount; provided, however, that no such Lien shall extend
to or cover any
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59
property other than the property being acquired, and no such extension,
renewal or replacement shall extend to or cover any property not
theretofore subject to the Lien being extended, renewed or replaced; and
provided further that any such Indebtedness shall not otherwise be
prohibited by the terms of the Loan Documents;
(iii) Liens arising under Capitalized Leases;
(iv) Liens on property of a Foreign Subsidiary, which Liens secure
Indebtedness permitted by Section 5.02(b)(iv)(A);
(v) Liens on the Borrowers' Franchisee Notes to secure Indebtedness
permitted by Section 5.02(b)(i)(C) or in connection with sales permitted
by Section 5.02(d)(iii); and
(vi) Liens securing Indebtedness permitted by Section 5.02(b)(vi).
(b) Indebtedness. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any
Indebtedness other than:
(i) in the case of the Borrowers,
(A) unsecured Indebtedness, if before and immediately after
giving effect to the creation, incurrence or assumption of such
Indebtedness:
(x) GNCI is in compliance, before and after giving effect
to the incurrence of such Indebtedness, on a pro forma basis,
with the Adjusted Maximum Leverage Ratio set forth in Section
5.04(b);
(y) the total amount of Indebtedness incurred pursuant to
this Section 5.02(b)(i)(A) and Section 5.02(b)(iv)(B) shall not
exceed an aggregate of $200,000,000 at any one time outstanding
(including, without limitation, the aggregate amount of all
outstanding and other undrawn commitments to provide
Indebtedness to GNI and its Subsidiaries pursuant to this
Section 5.02(b)(i)(A) and Section 5.02(b)(iv)(B)); and
(z) no Default shall have occurred and be continuing at the
time of such incurrence of Indebtedness;
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60
provided that prior to the creation, incurrence or assumption of any
such Indebtedness, the Administrative Agent shall have received a
certificate of the chief financial officer of GNCI showing, in
sufficient detail as to permit computation thereof, compliance with
the Adjusted Maximum Leverage Ratio set forth in Section 5.04(b) as
at the end of the immediately preceding Rolling Period and compliance
with the limitation on Indebtedness set forth in Section
5.02(b)(i)(A)(y); and provided further that any such Indebtedness
shall (1) contain covenants that are less restrictive in all material
respects and, in no case, more restrictive than those covenants set
forth in this Agreement and the other Loan Documents and (2) not have
any regularly scheduled amortization payments due on or before June
30, 2002;
(B) Indebtedness in respect of Hedge Agreements designed to
hedge against fluctuations in interest rates or foreign exchange
rates and not for speculative purposes;
(C) Indebtedness to effect a securitization of the Borrowers'
Franchisee Notes, provided that as at the time of the incurrence of
such Indebtedness, no Default shall have occurred or be continuing;
(D) Indebtedness in satisfaction or substitution for premiums on
insurance policies maintained by the Borrowers and their Subsidiaries
in the ordinary course of business of the Borrowers and their
Subsidiaries;
(ii) in the case of GNI,
(A) Indebtedness in respect of the PIK Preferred Stock; and
(B) Intercompany Subordinated Debt from time to time, and
(iii) in the case of any of its Subsidiaries referred to in Section
5.02(e)(i) or (ix) or any other Subsidiaries referred to in Sections
5.02(e)(iv) or (v) or any Affiliate referred to in Section 5.02(e)(vi), in
each case, to the extent permitted by those Sections, Indebtedness owed to
such Borrower or to a wholly-owned United States Subsidiary of such
Borrower;
(iv) in the case of Foreign Subsidiaries, any:
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61
(A) Indebtedness without recourse to GNCI, any Borrower, any
other Subsidiary of any Borrower or any Affiliate thereof;
(B) any other unsecured Indebtedness if before and immediately
after giving effect to the creation, incurrence or assumption
thereof:
(x) GNCI is in compliance, before and after giving effect
to the incurrence of such Indebtedness, on a pro forma basis,
with the Adjusted Maximum Leverage Ratio set forth in Section
5.04(b);
(y) the total amount of Indebtedness incurred pursuant to
Section 5.02(b)(i)(A) and this Section 5.02(b)(iv) (B) shall not
exceed an aggregate of $200,000,000 (or other equivalent thereof
in any Foreign Currency, determined as of the date of the
incurrence of such Indebtedness) at any one time outstanding
(including, without limitation, the aggregate amount of all
outstanding and other undrawn commitments to provide
Indebtedness to GNI and its Subsidiaries pursuant to Section
5.02(b)(i)(A) and this Section 5.02(b)(iv)(B));
(z) no Default shall have occurred and be continuing at the
time of such incurrence of Indebtedness;
provided that prior to the creation, incurrence or assumption of any
such Indebtedness, the Administrative Agent shall have received a
certificate of the chief financial officer of GNCI showing, in
sufficient detail as to permit computation thereof, compliance with
the Adjusted Maximum Leverage Ratio set forth in Section 5.04(b) as
at the end of the immediately preceding Rolling Period and compliance
with the limitation on Indebtedness set forth in Section
5.02(b)(iv)(B)(y);
(v) in the case of the Borrowers and any of their Subsidiaries,
(A) unsecured Indebtedness incurred in the ordinary course of
business for the deferred purchase price of property or services,
maturing within one year from the date created;
(B) Indebtedness secured by Liens permitted by Section
5.02(a)(ii) and 5.02(a)(iii) not to exceed in the aggregate
$50,000,000 at any time outstanding; and
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62
(C) Indebtedness under the Loan Documents;
(vi) in the case of the Borrowers, any wholly-owned United States
Subsidiary of the Borrowers or Gustine, in each case, to purchase and
renovate the building located at 300 Sixth Avenue, Pittsburgh,
Pennsylvania, Indebtedness in a principal amount, together with any
Investments permitted under Section 5.02(e)(x), not to exceed in the
aggregate $30,000,000 at any one time outstanding; and
(vii) indorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business.
(c) Mergers, Etc. Merge with or into or consolidate with or into any
Person or permit any Person to merge with or into it, or transfer or
dispose of all or substantially all of its property and assets, or permit
any of its Subsidiaries to do any of the foregoing, except that (i) any
wholly-owned United States Subsidiary of such Borrower may merge with or
into or consolidate with or into, or transfer all or substantially all of
its property and assets to, any other wholly-owned United States
Subsidiary of such Borrower or such Borrower, (ii) GNI may merge with or
into or consolidate with or into, or transfer all or substantially all of
its property and assets to GNCI and (iii) any Loan Party may merge with or
into a wholly-owned United States Subsidiary of such Loan Party that (A)
is incorporated under the laws of the State of Delaware and (B) has no
material assets or liabilities, for the sole purpose of changing the state
of incorporation of such Loan Party if the surviving corporation shall
expressly assume the liabilities of such Loan Party under the Loan
Documents; provided, however, that, in each case, immediately after giving
effect thereto, no event shall occur and be continuing that constitutes a
Default.
(d) Sales, Etc. of Assets. Sell, lease, transfer or otherwise dispose
of, or permit any of its Subsidiaries to sell, lease, transfer or
otherwise dispose of, any assets, except:
(i) sales of inventory and equipment by the Borrowers and their
Subsidiaries in the ordinary course of its business;
(ii) dispositions of property and assets by wholly-owned United
States Subsidiaries in a transaction permitted by Section 5.02(c);
(iii) sales of Franchisee Notes;
(iv) other dispositions of property and assets by the Borrowers
and their Subsidiaries for cash and fair value that do not exceed an
aggregate
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63
amount of $20,000,000 in any single transaction or series of related
transactions or $75,000,000 in the aggregate;
(v) Permitted Franchise Asset Sales;
(vi) transfers of property and assets by the Borrowers and their
Subsidiaries to any other United States Loan Party (other than GNCI);
provided that as at the time of such transfers, no Default shall have
occurred or be continuing;
(vii) transfers of property and assets by any Subsidiary of the
Borrowers that is organized, and with substantially all of its assets
located, outside of the United States to any Foreign Subsidiary;
(viii) the sale or lease of the Borrowers' headquarters building
located at 300 Sixth Avenue, Pittsburgh, Pennsylvania.
(e) Investments in Other Persons. Make or hold, or permit any of its
Subsidiaries to make or hold, any Investment in any Person other than:
(i) Investments by the Borrowers and their wholly-owned United
States Subsidiaries in their wholly-owned United States Subsidiaries,
so long as such Investments are made in the Health Care Business and
in incidental businesses acquired in connection therewith;
(ii) Investments by the Borrowers and their Subsidiaries in (A)
Cash Equivalents and (B) Hedge Agreements;
(iii) Investments by the Borrowers and their Subsidiaries in
Franchisee Notes;
(iv) Investments by the Borrowers and their wholly-owned United
States Subsidiaries in Foreign Subsidiaries in an aggregate amount
not to exceed $300,000,000 (or the equivalent thereof in any Foreign
Currency, determined as of the date such Investment is made)
outstanding at any one time (including the aggregate amount of all
outstanding and other undrawn commitments of Indebtedness of such
Foreign Subsidiaries permitted by Sections 5.02(b)(iii) and
5.02(b)(iv)(B)), so long as such Investments are made in the Health
Care Business and in incidental businesses acquired in connection
therewith;
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64
(v) Investments by the Borrowers in non-wholly-owned
Subsidiaries in an aggregate amount not to exceed $100,000,000 (or
the equivalent thereof in any Foreign Currency, determined as of the
date such Investment is made) outstanding at any one time (including
the aggregate amount of all outstanding Indebtedness of such
non-wholly-owned Subsidiary permitted by Section 5.02(b)(iii)), so
long as such Investments are made in the Health Care Business and in
incidental businesses acquired in connection therewith;
(vi) Investments by the Borrowers in Affiliates in an aggregate
amount not to exceed $50,000,000 (or the equivalent thereof in any
Foreign Currency, determined as of the date such Investment is made)
outstanding at any one time (including the aggregate amount of all
outstanding Indebtedness of such Affiliate permitted by Section
5.02(b)(iii)), so long as such Investments are made in the Health
Care Business and in incidental businesses acquired in connection
therewith; provided, that if, at any time, the Borrowers make a
single or a series of related Investments in any Affiliate in an
aggregate amount equal to or greater than $30,000,000 (or the
equivalent thereof in any Foreign Currency, determined as of the date
such Investment is made), such Investment shall be for the
acquisition of at least 20% of the Voting Stock of such Affiliate;
(vii) other Investments in an aggregate amount invested and at
any time outstanding not to exceed $5,000,000 (or the equivalent
thereof in any Foreign Currency, determined as of the date such
Investment is made), so long as such Investments are made in the
Health Care Business and in incidental businesses acquired in
connection therewith;
(viii) Investments as of the Fourth Restatement Date in Gymee's,
Inc., Nutri-Science, Inc. and WLC Acquisition Corp.;
(ix) Investments by the Borrowers in any Person that becomes a
non-wholly-owned United States Subsidiary in connection with a tender
offer involving a back-end merger pursuant to a signed merger
agreement, provided that (A) pursuant to such tender offer, the
Borrowers shall have purchased at least 90% of such Person's Voting
Stock, (B) such merger shall have been approved by such Person's
board of directors and (C) such Person shall become a wholly-owned
United States Subsidiary within six months following the initial
Investment; and
(x) Investments by the Borrowers (A) as a limited partner in
Gustine Sixth Avenue Associates Ltd. ("Gustine") and (B) in loans to
such partnership in an aggregate principal amount of such Investments
described in
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65
clauses (A) and (B) above not in excess of $30,000,000 in each case
to purchase and renovate the building located at 300 Sixth Avenue,
Pittsburgh, Pennsylvania; provided that, in each case, before and
immediately after giving effect to any Investment otherwise permitted
by Sections 5.02(e)(i), (iv), (v), (vi), (vii), (ix) and (x), no
Default shall have occurred and be continuing; and
(xi) Investments by the Borrowers and their Subsidiaries in
loans or advances to employees in the ordinary course of business of
the Borrowers and their Subsidiaries in an aggregate amount not to
exceed $5,000,000 (or the equivalent thereof in any Foreign Currency,
determined as of the date such Investment is made) at any time
outstanding;
provided, however, that in each case no Investment made in a single
transaction or series of related transactions shall exceed $100,000,000
(or the equivalent thereof in any Foreign Currency, determined as of the
date such Investment is made).
(f) Dividends, Etc. Declare or pay any dividends, purchase, redeem,
retire, defease or otherwise acquire for value any of its capital stock or
any warrants, rights or options to acquire such capital stock, now or
hereafter outstanding, return any capital to its stockholders as such,
make any distribution of assets, capital stock, warrants, rights, options,
obligations or securities to its stockholders as such, or issue or sell
any capital stock or any warrants, rights or options to acquire such
capital stock, or permit any of its Subsidiaries to purchase, redeem,
retire, defease or otherwise acquire for value any capital stock of such
Borrower or any warrants, rights or options to acquire such capital stock
or to issue or sell any capital stock or certificates of beneficial
ownership, as applicable, or any warrants, rights or options to acquire
such capital stock, except the Borrowers and their wholly-owned
Subsidiaries may:
(i) in the case of GNI, declare and pay dividends in cash to
GNCI to (1) discharge the obligations of GNI and its Subsidiaries
under the Tax Sharing Agreement, (2) pay administrative costs in the
ordinary course of business of GNCI, (3) provide GNCI with funds to
repurchase its outstanding capital stock or pay dividends to its
shareholders in an aggregate amount not to exceed $150,000,000,
provided, that following March 31, 1999, an additional amount of up
to $50,000,000 shall be permitted if, as at the end of the two
consecutive Rolling Periods ending immediately prior to the date of
such additional repurchases or dividend payments, the Maximum
Leverage Ratio shall be less than 2.00 : 1.00.
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66
(ii) purchase, redeem or defease the PIK Preferred Stock;
(iii) in the case of GNI, issue or sell any capital stock to
GNCI; and
(iv) in the case of any Subsidiary, declare and pay cash
dividends to the Borrowers or to a wholly-owned United States
Subsidiary of GNI.
provided that in each case, immediately before and immediately after
giving effect thereto, no Default shall have occurred and be continuing.
(g) Change in Nature of Business. Engage, or permit any of its
Subsidiaries to engage, in a business other than the Health Care Business,
except such business as may be acquired by the Loan Parties in connection
with an Investment permitted by Section 5.02(e)(i), (iv), (v), (vi), (vii)
or (ix) as shall be incidental to any such Investment.
(h) Charter Amendments. Amend, or permit any of its Subsidiaries to
amend (i) its certificate of incorporation or instrument organizing
business trust, as applicable, or (ii) its bylaws if such amendment could
reasonably be expected to adversely affect the interest or rights of the
Administrative Agent or the Lenders in any manner.
(i) Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting policies or
reporting practices (including, without limitation, any change in its
Fiscal Year), except as required or permitted by generally accepted
accounting principles, securities laws or the rules of any stock exchange
upon which GNCI's capital stock may be listed; provided that, if GNCI or
any of its Subsidiaries makes any such change in accounting policies or
reporting requirements, the Borrowers shall provide reconciliation reports
to the Administrative Agent, in form and substance satisfactory to the
Administrative Agent and if such change would impact the calculation of
the financial covenants contained in Section 5.04, the Borrowers shall
provide to the Lenders a revised calculation of each of the financial
covenants impacted by such change for each Fiscal Quarter from the date of
such change.
(j) Prepayments, Etc. of Indebtedness. (i) Prepay, redeem, purchase,
defease or otherwise satisfy prior to the scheduled maturity thereof in
any manner, or make any payment in violation of any subordination terms
of, any Indebtedness, other than (1) the prepayment of the Advances in
accordance with the terms of this Agreement, (2) the prepayment of any
Indebtedness payable to any Borrower or to a wholly-owned United States
Subsidiary of such Borrower, (3) the prepayment of any Indebtedness
permitted by Section 5.02(b)(iv)(A), or 5.02(b)(v)(B), (ii) amend,
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modify or change in any manner any term or condition of any PIK Preferred
Stock or any Indebtedness permitted by Section 5.02(b)(i)(A), or permit
any of its Subsidiaries to do any of the foregoing, in each case in any
manner materially adverse to the Administrative Agent or the Lenders;
provided that if the Maximum Leverage Ratio as at the end of the
immediately preceding Rolling Period is less than 1.00 : 1.00, the
Borrowers and their Subsidiaries shall be permitted to prepay, redeem,
purchase, defease or otherwise satisfy prior to the scheduled maturity
thereof any other Indebtedness permitted by Section 5.02(b) in an amount
not to exceed $25,000,000.
(k) Amendment, Etc. of Related Documents. Cancel or terminate any
Related Document or consent to or accept any cancellation or termination
thereof, amend, modify or change in any material respect any term or
condition of any Related Document or give any consent, waiver or approval
thereunder (it being acknowledged by such Borrower that the financial and
payment terms of any such Related Document are material terms and
conditions thereof), waive any default under or any breach of any term or
condition of any Related Document, agree in any manner to any other
amendment, modification or change of any term or condition of any Related
Document or take any other action in connection with any Related Document,
in each case that could reasonably be expected to impair the value of the
interest or rights of such Borrower thereunder or that could reasonably be
expected to impair the interest or rights of the Agents or the Lenders in
any manner, or permit any of its Subsidiaries to do any of the foregoing;
provided that the Tax Sharing Agreement may be amended to add as parties
thereto any wholly-owned Subsidiaries of the Borrowers on terms that are
substantially identical to the terms applicable to the Borrowers.
(l) Amendment, Etc. of Material Contracts. Cancel or terminate any
Material Contract or consent to or accept any cancellation or termination
thereof, amend, modify or otherwise change in any material respect any
term or condition of any Material Contract or give any consent, waiver or
approval thereunder, waive any default under or any breach of any term or
condition of any Material Contract, agree in any manner to any other
amendment, modification or change of any term or condition of any Material
Contract or take any other action in connection with any Material
Contract, in each case that could reasonably be expected to materially
impair the value of the interest or rights of such Borrower thereunder or
that could reasonably be expected to have a Material Adverse Effect, or
permit any of its Subsidiaries to do any of the foregoing.
(m) Negative Pledge. Enter into or suffer to exist, or permit any of
its Subsidiaries to enter into or suffer to exist, any agreement
prohibiting or conditioning the creation or assumption of any Lien upon
any of its property or assets other than in favor of the Administrative
Agent and the Lenders or in connection with Indebtedness
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permitted by Section 5.02(b)(iv)(A) to the extent such Lien extends solely
to the property or assets of the Foreign Subsidiary incurring such
Indebtedness.
(n) Partnerships. Become a general partner in any general or limited
partnership, or permit any of its Subsidiaries to do so.
(o) Release of Subsidiary Guarantors. Release any Subsidiary
Guarantor from any of its Obligations, except in connection with a sale of
the assets or capital stock of such Subsidiary Guarantor in a transaction
permitted under Section 5.02(d).
SECTION 5.03. Reporting Requirements to Lenders. So long as any Advance
shall remain unpaid, any Letter of Credit shall be outstanding or any Lender
shall have any Commitment hereunder, GNCI (except as noted below) will furnish
to the Lenders:
(a) Default Notice. As soon as possible and in any event within two
Business Days after any Loan Party has knowledge of the occurrence of a
Default continuing on the date of such statement, a statement of the chief
financial officer of GNI setting forth the nature of such Default and the
action that the Borrowers have taken and proposes to take with respect
thereto.
(b) Quarterly Financials. As soon as available and in any event within 45
days after the end of each of the first three Fiscal Quarters of each Fiscal
Year of GNCI, Consolidated balance sheets of GNCI and its Subsidiaries as of
the end of such Fiscal Quarter and Consolidated statements of income, cash
flow of, and changes in stockholders' equity of GNCI and its Subsidiaries
for the period commencing at the end of the previous Fiscal Quarter and
ending with the end of such Fiscal Quarter, setting forth in each case in
comparative form the year to date figures for such Fiscal Quarter, the
corresponding Fiscal Quarter in the preceding Fiscal Year and the year to
date figures for the corresponding Fiscal Quarter in the preceding Fiscal
Year, all in reasonable detail and duly certified (subject to year-end audit
adjustments and to the absence of footnote disclosure) by the chief
financial officer of GNCI as having been prepared in accordance with GAAP,
together with (i) a certificate of the chief financial officer of GNI
stating that no Default has occurred and is continuing or, if a Default has
occurred and is continuing, a statement as to the nature thereof and the
action that GNI has taken and proposes to take with respect thereto, (ii) a
schedule in form satisfactory to the Administrative Agent of the
computations used by GNCI in determining compliance as of the end of such
Fiscal Quarter with the covenants contained in Sections 5.02 and 5.04 (other
than 5.04(b)) and (iii) a management and financial report, including a
schedule of Funded Indebtedness, a report of same store sales for such
Fiscal Quarter, and a management discussion of results from operations for
such Fiscal Quarter.
<PAGE> 74
69
(c) Annual Financials. As soon as available and in any event within 90
days after the end of each Fiscal Year of GNCI, a copy of the annual audit
report for such Fiscal Year of GNCI and its Subsidiaries, including therein
Consolidated balance sheets of GNCI and its Subsidiaries as of the end of
such Fiscal Year and Consolidated statements of income, cash flow, and
changes in stockholders' equity of GNCI and its Subsidiaries for such Fiscal
Year, in each case accompanied by an opinion reasonably acceptable to the
Required Lenders of Deloitte & Touche or other independent public
accountants of recognized standing reasonably acceptable to the Required
Lenders, together with (i) a certificate of the chief financial officer of
GNI stating that no Default has occurred and is continuing or, if a Default
has occurred and is continuing, a statement as to the nature thereof and the
action that GNI has taken and proposes to take with respect thereto, (ii) a
schedule in form and substance satisfactory to the Administrative Agent of
the computations used by GNCI in determining, as of the end of such Fiscal
Year, compliance with the covenants contained in Sections 5.02 and 5.04
(other than 5.04(b)) and (iii) a management and financial report, including
a schedule of Funded Indebtedness, a report of same store sales for such
Fiscal Year, and a management discussion of results from operations for such
Fiscal Year.
(d) Accountants' Reports. Promptly upon receipt thereof, copies of all
reports submitted to GNCI or any of its Subsidiaries by Deloitte & Touche or
any other independent public accountants of GNCI or any such Subsidiary in
connection with each annual, interim or special audit of its financial
statement made by such accountants, including the comment letter submitted
by such accountants to management of GNCI or any such Subsidiary in
connection with their annual audit.
(e) ERISA Events. Promptly and in any event within ten days after any Loan
Party or any of its ERISA Affiliates knows or has reason to know that any
ERISA Event with respect to any Loan Party or any of its ERISA Affiliates
has occurred, a statement of the chief financial officer of GNCI describing
such ERISA Event and the action, if any, that such Loan Party or such ERISA
Affiliate has taken and proposes to take with respect thereto.
(f) Plan Annual Reports. Promptly and in any event within 30 days after
the filing thereof with the Internal Revenue Service, copies of each
Schedule B (Actuarial Information) to the annual report (form 5500 Series)
with respect to each Plan of each Loan Party or any of its ERISA Affiliates.
(g) Multiemployer Plan Notices. Promptly and in any event within 10 days
after receipt thereof by any Loan Party or any of its ERISA Affiliates from
the sponsor of a Multiemployer Plan of any Loan Party or any of its ERISA
Affiliates, copies of each notice concerning (i) the imposition of
Withdrawal Liability by any
<PAGE> 75
70
such Multiemployer Plan, (ii) the reorganization or termination, within the
meaning of Title IV of ERISA, of any such Multiemployer Plan or (iii) the
amount of liability incurred, or that may be incurred, by such Loan Party or
any of its ERISA Affiliates in connection with any event described in clause
(i) or (ii) above.
(h) Litigation. Promptly after the commencement thereof, notice of all
actions, suits, investigations (including, without limitation, any
investigation from any regulatory agency and any reports resulting from such
investigation), litigation and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic
or foreign, affecting any Loan Party or any of its Subsidiaries of the type
described in Section 4.01(i).
(i) Securities Reports. Promptly after the sending or filing thereof,
copies of all proxy statements, financial statements and reports that any
Loan Party or any of its Subsidiaries sends to its stockholders, and copies
of all regular, periodic and special reports, and all registration
statements, that any Loan Party or any of its Subsidiaries files with the
SEC or any governmental authority that may be substituted therefor, or with
any national securities exchange.
(j) Revenue Agent Reports. Within 30 days after receipt, copies or
summaries of all Revenue Agent Reports (Internal Revenue Service form 886),
or other written proposals of the Internal Revenue Service, that propose,
determine or otherwise set forth increases to the federal income tax
liability of the affiliated group (within the meaning of Section 1504(a)(1)
of the Internal Revenue Code) of which such Borrower is a member aggregating
$3,000,000 or more.
(k) Agreement Notices. Upon request by the Administrative Agent, such
other information and reports regarding the Related Documents and the
Material Contracts as the Administrative Agent may reasonably request.
(l) Environmental Conditions. Promptly after the occurrence thereof,
notice of any condition or occurrence on any property of any Loan Party or
any of its Subsidiaries that results in a material noncompliance by any Loan
Party or any of its Subsidiaries with any Environmental Law or Environmental
Permit or could (i) form the basis of an Environmental Action against any
Loan Party or any of its Subsidiaries or such property that could reasonably
be expected to have a Material Adverse Effect or (ii) cause any such
property to be subject to any restrictions on ownership, occupancy, use or
transferability under any Environmental Law.
(m) Plan Terminations. Promptly and in any event within two Business Days
after receipt thereof by any Loan Party or any of its ERISA Affiliates,
copies of each notice from the PBGC stating its intention to terminate any
Plan of any Loan
<PAGE> 76
71
Party or any of its ERISA Affiliates or to have a trustee appointed to
administer any such Plan.
(n) Environmental Reports. Promptly after the receipt thereof, copies of
all reports furnished to GNCI or any of its Subsidiaries (including, without
limitation, environmental site assessment reports) prepared by environmental
consulting firms in respect of any properties owned or leased by GNCI or any
of its Subsidiaries.
(o) Other Information. Such other information with respect to the
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Loan Party or any of its Subsidiaries as any
Lender through the Administrative Agent may from time to time reasonably
request.
SECTION 5.04. Financial Covenants. So long as any Advance shall remain
unpaid, any Letter of Credit is outstanding or any Lender shall have any
Commitment hereunder, GNCI will:
(a) Maximum Leverage Ratio. Maintain on a Consolidated basis for itself
and its Subsidiaries a Maximum Leverage Ratio for each Rolling Period of not
more than the amount set forth below for each Fiscal Year set forth below:
<TABLE>
<CAPTION>
Maximum
Fiscal Year Leverage Ratio
----------- --------------
<S> <C>
Fiscal Year 1997 3.50 : 1.00
Fiscal Year 1998 3.50 : 1.00
Fiscal Year 1999 3.25 : 1.00
Fiscal Year 2000 2.75 : 1.00
Fiscal Year 2001 2.25 : 1.00
</TABLE>
(b) Adjusted Maximum Leverage Ratio. Maintain on a Consolidated basis for
itself and its Subsidiaries an Adjusted Maximum Leverage Ratio for each
Rolling Period of not more than the amount set forth below for each Fiscal
Year set forth below:
<PAGE> 77
72
<TABLE>
<CAPTION>
Adjusted Maximum
Fiscal Year Leverage Ratio
----------- ----------------
<S> <C>
Fiscal Year 1997 3.50 : 1.00
Fiscal Year 1998 3.50 : 1.00
Fiscal Year 1999 3.25 : 1.00
Fiscal Year 2000 2.75 : 1.00
Fiscal Year 2001 2.25 : 1.00
</TABLE>
(c) Fixed Charge Coverage Ratio. Maintain on a Consolidated basis for
itself and its Subsidiaries a Fixed Charge Coverage Ratio for each Rolling
Period of not less than the amount set forth below for each Fiscal Year set
forth below:
<TABLE>
<CAPTION>
Fixed Charge
Fiscal Year Coverage Ratio
----------- --------------
<S> <C>
Fiscal Year 1997 1.30 : 1.00
Fiscal Year 1998 1.40 : 1.00
Fiscal Year 1999 1.40 : 1.00
Fiscal Year 2000 1.50 : 1.00
Fiscal Year 2001 1.50 : 1.00
</TABLE>
(d) Minimum Net Worth. Maintain at all times on a Consolidated basis for
itself and its Subsidiaries an excess of total assets less total liabilities
less (w) 25% of the total amount of Net Cash Proceeds received by GNCI from
any sale or issuance of any capital stock or any warrants, rights or options
to acquire capital stock plus (x) the total amount, if any, of funds used in
accordance with the provisions of Section 5.02(f)(i)(3) plus (y) the total
amount of non-cash charges relating to (i) pensions, (ii) stock options,
(iii) stock appreciation rights, and (iv) other equity-based incentive
plans, plus or minus (z) foreign currency translations, of not less than the
amount set forth below for each Fiscal Year set forth below:
<TABLE>
<CAPTION>
Minimum
Fiscal Year Net Worth
----------- ---------
<S> <C>
Fiscal Year 1997 $240,000,000
Fiscal Year 1998 $300,000,000
Fiscal Year 1999 $370,000,000
Fiscal Year 2000 $450,000,000
Fiscal Year 2001 $530,000,000
</TABLE>
<PAGE> 78
73
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events ("Events
of Default") shall occur and be continuing:
(a) (i) any Borrower shall fail to pay any principal of any Advance, when
the same becomes due and payable or (ii) any Loan Party shall fail to make
interest or any other payment under any Loan Document within five Business
Days after the same becomes due and payable; or
(b) any representation or warranty made, or deemed to be made, by any Loan
Party or any of its officers under or in connection with any Loan Document
shall prove to have been incorrect in any material respect when made (or
deemed made); or
(c) (i) any of GNC, GNI or GNCI shall fail to perform or observe any term,
covenant or agreement contained in Section 5.01(b), 5.01(e), 5.01(i) (to the
extent that such covenant relates to the chief executive office or chief
place of business of such Borrower), 5.01(j), 5.02, 5.03 (except with
respect to 5.03(b) and (c)) or 5.04, (ii) either GNC, GNI or GNCI shall fail
to perform or observe any term, covenant or agreement contained in 5.03(b)
and (c) and such failure shall continue for 10 days, (iii) GNCI shall fail
to perform or observe any term, covenant or agreement contained in Section
7(a) of the Fourth Amended and Restated Parent Guaranty, or (iv) any Loan
Party shall fail to perform any other term, covenant or agreement contained
in any Loan Document on its part to be performed or observed and such
failure shall remain unremedied for 20 days after written notice thereof
shall have been given to the Borrowers by the Administrative Agent or any
Lender; or
(d) any Loan Party or any of its Subsidiaries shall fail to pay any
principal of, premium or interest on or any other amount payable in respect
of any Indebtedness that is outstanding in a principal amount of at least
$5,000,000 in the aggregate (but excluding Indebtedness outstanding
hereunder) of such Loan Party or such Subsidiary, as the case may be, when
the same becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise); or any other event shall
occur or condition shall exist under any agreement or instrument relating to
any such Indebtedness, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such
Indebtedness or otherwise to cause, or to permit the holder thereof to
cause, such Indebtedness to mature; or any such Indebtedness shall be
declared to be due and payable or required to be prepaid or redeemed (other
than by a regularly scheduled
<PAGE> 79
74
required prepayment or redemption), purchased or defeased, or an offer to
prepay, redeem, purchase or defease such Indebtedness shall be required to
be made, in each case prior to the stated maturity thereof; or
(e) any Loan Party or any of its Subsidiaries shall generally not pay its
debts as such debts become due, or shall admit in writing its inability to
pay its debts generally, or shall make a general assignment for the benefit
of creditors; or any proceeding shall be instituted by or against any Loan
Party or any of its Subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any
law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, or other similar official for it or for any substantial
part of its property and, in the case of any such proceeding instituted
against it (but not instituted by it) that is being diligently contested by
it in good faith, either such proceeding shall remain undismissed or
unstayed for a period of 30 days or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee, custodian or other
similar official for, it or any substantial part of its property) shall
occur; or any Loan Party or any of its Subsidiaries shall take any corporate
action to authorize any of the actions set forth above in this Section
6.01(e); or
(f) any judgment or order for the payment of money in excess of $5,000,000
shall be rendered against any Loan Party or any of its Subsidiaries and
either (i) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order or (ii) there shall be any period of 10
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect;
or
(g) any nonmonetary judgment or order shall be rendered against any Loan
Party or any of its Subsidiaries that is reasonably likely to have a
Material Adverse Effect, and there shall be any period of 10 consecutive
days during which a stay of enforcement of such judgment or order, by reason
of a pending appeal or otherwise, shall not be in effect; or
(h) any provision of any Loan Document after delivery thereof pursuant to
Section 3.01 shall for any reason cease to be valid and binding on or
enforceable against any Loan Party party to it that results in a materially
adverse effect on the rights and remedies of the Agents or any Lender, or
any such Loan Party shall so state in writing; or
<PAGE> 80
75
(i) (i) Any Person or two or more Persons acting in concert shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of
1934), directly or indirectly, of Voting Stock of GNCI (or other securities
convertible into such Voting Stock) representing 20% or more of the combined
voting power of all Voting Stock of GNCI; or (ii) during any period of up to
24 consecutive months, commencing before or after the Fourth Restatement
Date, individuals who at the beginning of such 24-month period were
directors of GNCI (together with any new directors whose election or
appointment by the board of directors of GNCI or whose nomination for
election by the shareholders of GNCI was approved by a vote of 66-2/3% of the
directors of GNCI then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) shall cease for any reason to constitute a majority
of the board of directors of GNCI then in office; or
(j) any ERISA Event shall have occurred with respect to a Plan of any Loan
Party or any of its ERISA Affiliates and the sum (determined as of the date
of occurrence of such ERISA Event) of the Insufficiency of such Plan and the
Insufficiency of any and all other Plans of the Loan Parties and their ERISA
Affiliates with respect to which an ERISA Event shall have occurred and then
exist (or the liability of the Loan Parties and their ERISA Affiliates
related to such ERISA Event) exceeds $1,000,000; or
(k) any Loan Party or any of its ERISA Affiliates shall have been notified
by the sponsor of a Multiemployer Plan of any Loan Party or any of its ERISA
Affiliates that it has incurred Withdrawal Liability to such Multiemployer
Plan in an amount that, when aggregated with all other amounts required to
be paid to Multiemployer Plans by the Loan Parties and their ERISA
Affiliates as Withdrawal Liability (determined as of the date of such
notification), exceeds $1,000,000 or requires payments exceeding $500,000
per annum; or
(l) any Loan Party or any of its ERISA Affiliates shall have been notified
by the sponsor of a Multiemployer Plan of any Loan Party or any of its ERISA
Affiliates that such Multiemployer Plan is in reorganization or is being
terminated, within the meaning of Title IV of ERISA, and as a result of such
reorganization or termination the aggregate annual contributions of the Loan
Parties and their ERISA Affiliates to all Multiemployer Plans that are then
in reorganization or being terminated have been or will be increased over
the amounts contributed to such Multiemployer Plans for the plan years of
such Multiemployer Plans immediately preceding the plan year in which such
reorganization or termination occurs by an amount exceeding $1,000,000;
<PAGE> 81
76
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Borrowers,
declare the obligation of each Appropriate Lender to make Advances to be
terminated, whereupon the same shall forthwith terminate, and (ii) shall at the
request, or may with the consent, of the Required Lenders, by notice to the
Borrowers, declare the Notes, all interest thereon and all other amounts
payable under this Agreement and the other Loan Documents to be forthwith due
and payable, whereupon the Notes, all such interest and all such amounts shall
become and be forthwith due and payable, without presentment, demand, protest
or further notice of any kind, all of which are hereby expressly waived by each
Borrower; provided, however, that in the event of an actual or deemed entry of
an order for relief with respect to any Loan Party under the Federal Bankruptcy
Code, (x) the obligation of each Lender to make Advances shall automatically be
terminated and (y) the Notes, all such interest and all such amounts shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
each Borrower.
SECTION 6.02. Actions in Respect of the Letters of Credit upon Default. If
any Event of Default shall have occurred and be continuing, the Administrative
Agent may, irrespective of whether it is taking any of the actions described in
Section 6.01 or otherwise, make demand upon the Borrowers to, and forthwith
upon such demand the Borrowers will, pay to the Administrative Agent on behalf
of the Lenders in same day funds at the Administrative Agent's office
designated in such demand, for deposit in the L/C Cash Collateral Account, an
amount equal to the aggregate Available Amount of all Letters of Credit then
outstanding. If at any time the Administrative Agent determines that any funds
held in the L/C Cash Collateral Account are subject to any right or claim of
any Person other than the Administrative Agent and the Lenders or that the
total amount of such funds is less than the aggregate Available Amount of all
Letters of Credit, the Borrowers will, forthwith upon demand by the
Administrative Agent, pay to the Administrative Agent, as additional funds to
be deposited and held in the L/C Cash Collateral Account, an amount equal to
the excess of (a) such aggregate Available Amount over (b) the total amount of
funds, if any, then held in the L/C Cash Collateral Account that the
Administrative Agent determines to be free and clear of any such right and
claim.
ARTICLE VII
THE AGENTS
SECTION 7.01. Authorization and Action. Each Lender hereby appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers and discretion under this Agreement and the other
Loan Documents as are delegated to the Administrative Agent by the terms hereof
and thereof, together with such powers and discretion as are reasonably
incidental thereto. As to any matters not expressly
<PAGE> 82
77
provided for by the Loan Documents (including, without limitation, enforcement
or collection of the Notes), the Administrative Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding upon all Lenders and all holders of Notes;
provided, however, that the Administrative Agent shall not be required to take
any action that exposes the Administrative Agent to personal liability or that
is contrary to this Agreement or applicable law. The Administrative Agent
agrees to give to each Lender prompt notice of each notice given to it by the
Borrowers pursuant to the terms of this Agreement.
SECTION 7.02. Agents' Reliance, Etc. Neither any of the Agents nor any of
their directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them under or in connection with the Loan
Documents, except for its or their own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, the Administrative Agent: (a)
may treat the payee of any Note as the holder thereof until the Administrative
Agent receives and accepts an Assignment and Acceptance entered into by the
Lender that is the payee of such Note, as assignor, and an Eligible Assignee,
as assignee, as provided in Section 8.07; (b) may consult with legal counsel
(including counsel for any Loan Party), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (c) makes no warranty or representation to any
Lender and shall not be responsible to any Lender for any statements,
warranties or representations made in or in connection with the Loan Documents;
(d) shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of any Loan Document on
the part of any Loan Party or to inspect the property (including the books and
records) of any Loan Party; (e) shall not be responsible to any Lender for the
due execution, legality, validity, enforceability, genuineness, sufficiency or
value of any Loan Document or any other instrument or document furnished
pursuant hereto; (f) shall incur no liability under or in respect of any Loan
Document by acting upon any notice, consent, certificate or other instrument or
writing (which may be by telegram, telecopy, cable or telex) believed by it to
be genuine and signed or sent by the proper party or parties; and (g) shall
incur no liability as a result of any determination whether the transactions
contemplated by the Loan Documents constitute a "highly leveraged transaction"
within the meaning of the interpretations issued by the Comptroller of the
Currency, the Federal Deposit Insurance Corporation and the Board of Governors
of the Federal Reserve System.
SECTION 7.03. Agents, Issuing Bank, Swing Line Bank and Affiliates. With
respect to its Commitments, the Advances made by it and the Note or Notes
issued to it, each Agent, the Issuing Bank and the Swing Line Bank shall have
the same rights and powers under the Loan Documents as any other Lender and may
exercise the same as though
<PAGE> 83
78
it were not an Agent, the Issuing Bank or the Swing Line Bank, and the term
"Lender" or "Lenders" shall, unless otherwise expressly indicated, include each
Agent, the Issuing Bank and the Swing Line Bank, as the case may be, in its
individual capacity. Each Agent, the Issuing Bank and the Swing Line Bank and
their respective affiliates may accept deposits from, lend money to, act as
trustee under indentures of, accept investment banking engagements from and
generally engage in any kind of business with, any Loan Party, any of its
Subsidiaries and any Person who may do business with or own securities of any
Loan Party or any such Subsidiary, all as if it were not an Agent, the Issuing
Bank or the Swing Line Bank, and without any duty to account therefor to the
Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it
has, independently and without reliance upon any Agent, the Issuing Bank or the
Swing Line Bank or any other Lender and based on the financial statements
referred to in Section 4.01 and such other documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into
this Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon any Agent, the Issuing Bank or the Swing Line Bank or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
SECTION 7.05. Indemnification. Each Lender severally agrees to indemnify
the Agents, the Issuing Bank and the Swing Line Bank (to the extent not
promptly reimbursed by the Borrowers) from and against such Lender's ratable
share of any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever that may be imposed on, incurred by, or asserted against the
Agents, the Issuing Bank or the Swing Line Bank, as the case may be, in any way
relating to or arising out of the Loan Documents or any action taken or omitted
to be taken by the Administrative Agent, the Issuing Bank and the Swing Line
Bank, as the case may be, under the Loan Documents; provided, however, that no
Lender shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Agents', the Issuing Bank's or the Swing Line
Bank's gross negligence or willful misconduct. Without limitation of the
foregoing, each Lender agrees to reimburse the Administrative Agent, the
Issuing Bank and the Swing Line Bank promptly upon demand for its ratable share
of any costs and expenses payable by the Borrowers under Section 8.04, to the
extent that the Administrative Agent, the Issuing Bank and the Swing Line Bank,
as the case may be, is not promptly reimbursed for such costs and expenses by
the Borrowers. For purposes of this Section 7.05, the Lenders' respective
ratable shares of any amount shall be determined, at any time, according to the
sum of (i) the aggregate principal amount of the Advances outstanding at such
time and owing to the respective Lenders plus (ii) their respective Unused
Revolving Credit Commitments at such time plus (iii) their respective Pro Rata
Shares of the aggregate outstanding Swing Line Advances, other than any Swing
Line Advance that, at or prior to
<PAGE> 84
79
such time, has been assigned in part to, and made by, a Lender pursuant to
Section 2.02(b) plus (iv) their respective Pro Rata Shares of the aggregate
outstanding Letter of Credit Advances, other than any Letter of Credit Advance
that, at or prior to such time, has been assigned in part to, and made by, a
Lender pursuant to Section 2.13(c) plus (v) their respective Pro Rata Shares of
the aggregate Available Amount of Letters of Credit then outstanding. The
failure of any Lender to reimburse the Administrative Agent promptly upon
demand for its ratable share of any amount required to be paid by the Lenders
to the Administrative Agent as provided herein shall not relieve any other
Lender of its obligation hereunder to reimburse the Administrative Agent for
its ratable share of such amount, but no Lender shall be responsible for the
failure of any other Lender to reimburse the Administrative Agent for such
other Lender's ratable share of such amount.
SECTION 7.06. Successor Administrative Agents. The Administrative Agent
may resign from any or all of the Facilities at any time by giving written
notice thereof to the Lenders and the Borrowers. Upon any such resignation, the
Required Lenders shall have the right to appoint a successor Administrative
Agent as to such of the Facilities as to which the Administrative Agent has
resigned; provided that such appointed successor Administrative Agent is a
Lender. If no successor Administrative Agent shall have been so appointed by
the Required Lenders, and shall have accepted such appointment, within 30 days
after the retiring Administrative Agent's giving of notice of resignation, then
the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent, which shall be (i) a commercial bank or (ii) a
finance company, insurance company or other financial institution that is
engaged in making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business and is capable of performing the duties of the
Administrative Agent hereunder. After any retiring Administrative Agent's
resignation hereunder as Administrative Agent as to all of the Facilities, the
provisions of this Article VII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent as to any
Facilities under this Agreement. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent as to all of
the Facilities, such successor Administrative Agent shall succeed to and become
vested with all the rights, powers, discretion, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations under the Loan Documents. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent as to any of the Facilities, such successor Administrative
Agent shall succeed to and become vested with all the rights, powers,
discretion, privileges and duties of the retiring Administrative Agent as to
such Facility or Facilities, other than with respect to funds transfers and
other similar aspects of the administration of Borrowings under such Facility
or Facilities and payments by the Borrowers in respect of such Facility or
Facilities, and the retiring Administrative Agent shall be discharged from its
duties and obligations under this Agreement as to such Facility or Facilities,
other than as aforesaid.
<PAGE> 85
80
SECTION 7.07. The Agents. Neither the Documentation Agent, nor either
Syndication Agent, nor any Co-Agent, in its capacity as such Agent, assumes any
responsibility or obligation hereunder for servicing, syndication, enforcement
or collection of the Indebtedness resulting from the Advances, nor any duties
as agent hereunder for the Lenders.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of
this Agreement or the Notes, nor consent to any departure by the Borrowers
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Required Lenders, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that (a) no amendment, waiver or consent shall,
unless in writing and signed by all the Lenders, do any of the following at any
time: (i) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Notes, or the number of Lenders that shall be required
for the Lenders or any of them to take any action hereunder or change the
percentage contained in the definition of Required Lenders or (ii) amend this
Section 8.01 or Section 5.02(m), or release any guaranty of GNCI, GNI or GNC,
and (b) no amendment, waiver or consent shall, unless in writing and signed by
the Required Lenders and each Appropriate Lender that is affected thereby, do
any of the following: (i) increase the Commitments of such Lender or subject
such Lender to any additional obligations, (ii) reduce the principal of, or
interest on, the Note or Notes held by such Lender or any fees or other amounts
payable hereunder to such Lender, or (iii) postpone any date fixed for any
commitment reduction or any payment of principal of, or interest on, the Note
or Notes held by such Lender or any fees or other amounts payable hereunder to
such Lender; provided further that no amendment, waiver or consent shall,
unless in writing and signed by the Swing Line Bank or the Issuing Bank, as the
case may be, in addition to the Lenders required above to take such action,
affect the rights or obligations of the Swing Line Bank or of the Issuing Bank,
as the case may be, under this Agreement; and provided further that, in any
case, no amendment, waiver or consent shall, unless in writing and signed by
the Administrative Agent in addition to the Lenders required above to take such
action, affect the rights or duties of the Administrative Agent under this
Agreement or any Note.
SECTION 8.02. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing (including telegraphic, telecopy, telex or
cable communication) and mailed, telegraphed, telecopied, telexed, cabled or
delivered, if to GNI, at its address at 921 Penn Avenue, Pittsburgh, PA 15222,
Attention: Chief Financial Officer, if to GNC, at its address at 921 Penn
Avenue, Pittsburgh, PA 15222, Attention:
<PAGE> 86
81
Chief Financial Officer, with a copy to Hutchins, Wheeler & Dittmar, A
Professional Corporation, at its address at 101 Federal Street, Boston, MA
02110, Attention: Jeffrey S. Wieand; if to any Restatement Lender, at its
Domestic Lending Office specified opposite its name on Schedule I hereto; if to
any other Lender, at its Domestic Lending Office specified in the Assignment
and Acceptance pursuant to which it became a Lender; and if to the
Administrative Agent, at its address at 499 Park Avenue, New York, New York
10022, Attention: Michael Finkelman; or, as to each party, at such other
address as shall be designated by such party in a written notice to the other
parties. All such notices and communications shall, when mailed, telegraphed,
telecopied, telexed or cabled, be effective when deposited in the mails,
delivered to the telegraph company, transmitted by telecopier, confirmed by
telex answerback or delivered to the cable company, respectively, except that
notices and communications to the Administrative Agent pursuant to Article II,
III or VII shall not be effective until received by the Administrative Agent.
SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender or
any Agent to exercise, and no delay in exercising, any right hereunder or under
any Note shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or
the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.
SECTION 8.04. Costs and Expenses. (a) GNC and GNI jointly and severally
hereby agree to pay on demand (i) all reasonable out-of-pocket costs and
expenses of the Administrative Agent, the Issuing Bank and the Swing Line Bank
in connection with the preparation, execution, delivery, administration,
modification and amendment of the Loan Documents (including, without
limitation, (A) all due diligence, syndication, transportation, computer,
duplication, appraisal, audit, insurance, consultant, search, filing and
recording fees and expenses and (B) the reasonable fees and expenses of counsel
for the Administrative Agent with respect thereto, with respect to advising the
Administrative Agent as to its rights and responsibilities, or the perfection,
protection or preservation of rights or interests, under the Loan Documents,
with respect to negotiations with any Loan Party or with other creditors of any
Loan Party or any of its Subsidiaries arising out of any Default or any events
or circumstances that may give rise to a Default and with respect to presenting
claims in or otherwise participating in or monitoring any bankruptcy,
insolvency or other similar proceeding involving creditors' rights generally
and any proceeding ancillary thereto), (ii) all reasonable costs and expenses
of the Agents and the Lenders in connection with the enforcement of the Loan
Documents, whether in any action, suit or litigation, any bankruptcy,
insolvency or other similar proceeding affecting creditors' rights generally or
otherwise (including, without limitation, the reasonable fees and expenses of
counsel for the Administrative Agent and each Lender with respect thereto) and
(iii) all reasonable costs and expenses of the Administrative Agent in
connection with the preparation, execution and delivery of the Loan Documents.
<PAGE> 87
82
(b) The Borrowers jointly and severally hereby agree to indemnify and hold
harmless the Agents and each Lender and each of their Affiliates and their
officers, directors, employees, agents and advisors (each, an "Indemnified
Party") from and against any and all claims that may be asserted against, and
any and all damages, losses, liabilities and reasonable expenses (including,
without limitation, reasonable fees and expenses of counsel) that may be
incurred by or awarded against, any Indemnified Party, in each case arising out
of or in connection with or by reason of, or in connection with the preparation
for a defense of, any investigation, litigation or proceeding arising out of,
related to or in connection with (i) the transactions contemplated hereby or
(ii) the actual or alleged presence of Hazardous Materials on any property of
any Loan Party or any of its Subsidiaries or any Environmental Action relating
in any way to any Loan Party or any of its Subsidiaries, in each case whether
or not such investigation, litigation or proceeding is brought by any Loan
Party, its directors, shareholders or creditors or an Indemnified Party or any
Indemnified Party is otherwise a party thereto and whether or not the
transactions contemplated hereby are consummated, except to the extent such
claim, damage, loss, liability or expense is found in a final, nonappealable
judgment by a court of competent jurisdiction to have resulted from such
Indemnified Party's gross negligence or willful misconduct. No termination of
this Agreement shall affect the obligations of the Borrowers to indemnify each
Indemnified Party under the conditions and to the extent set forth in this
Section 8.04(b).
(c) If any payment of principal of, or Conversion of, any Eurodollar Rate
Advance is made by any of the Borrowers to or for the account of a Lender other
than on the last day of the Interest Period for such Advance, as a result of a
payment or conversion pursuant to Section 2.08(b)(i), 2.09(d) or 2.09(e),
acceleration of the maturity of the Notes pursuant to Section 6.01 or for any
other reason, the Borrowers jointly and severally hereby agree to, upon demand
by such Lender (with a copy of such demand to the Administrative Agent), pay to
the Administrative Agent for the account of such Lender any amounts required to
compensate such Lender for any additional losses, costs or expenses that it may
reasonably incur as a result of such payment, including, without limitation,
any loss (including loss of anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired
by any Lender to fund or maintain such Advance. A certificate as to the amount
of such required compensation, submitted to the Borrowers by such Lender, shall
be conclusive and binding for all purposes, absent manifest error.
(d) If any Loan Party fails to pay when due any costs, expenses or other
amounts payable by it under any Loan Document, including, without limitation,
fees and expenses of counsel and indemnities, such amount may be paid on behalf
of such Loan Party by the Administrative Agent or any Lender, in its sole
discretion.
SECTION 8.05. Right of Setoff. Upon (a) the occurrence and during the
continuance of any Event of Default and (b) the making of the request or the
granting of the
<PAGE> 88
83
consent specified by Section 6.01 to authorize the Administrative Agent to
declare the Notes due and payable pursuant to the provisions of Section 6.01,
each Lender and each of its Affiliates is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and
otherwise apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by such Lender or such Affiliate to or for the credit or the account of the
Borrowers against any and all of the Obligations of the Borrowers now or
hereafter existing under this Agreement and the Note or Notes held by such
Lender, and irrespective of whether such Lender shall have made any demand
under this Agreement or such Note or Notes and although such obligations may be
unmatured. Each Lender agrees promptly to notify the Borrowers after any such
setoff and application; provided, however, that the failure to give such notice
shall not affect the validity of such setoff and application. The rights of
each Lender and its Affiliates under this Section 8.05 are in addition to other
rights and remedies (including, without limitation, other rights of setoff)
that such Lender and its Affiliates may have. Each such setoff shall be subject
to Section 2.12.
SECTION 8.06. Binding Effect. This Agreement shall become effective when
it shall have been executed by each GNC and GNI, the Agents, the Issuing Bank
and the Swing Line Bank and when the Administrative Agent shall have been
notified by each Restatement Lender that such Restatement Lender has executed
it and thereafter shall be binding upon and inure to the benefit of the
Borrowers, the Agents, the Issuing Bank, the Swing Line Bank, and each Lender
and their respective successors and assigns, except that no Borrower shall have
the right to assign its rights hereunder or any interest herein without the
prior written consent of the Lenders.
SECTION 8.07. Assignments and Participations. (a) Each Lender may assign
to one or more banks or other entities all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment or Commitments, the Advances owing to it and the Note
or Notes held by it); provided, however, that (i) except in the case of an
assignment of all of a Lender's rights and obligations under this Agreement,
the amount of the Commitment of the assigning Lender being assigned pursuant to
each such assignment (determined as of the date of the Assignment and
Acceptance with respect to such assignment) shall in no event be less than
$10,000,000 (or, in the event that the assignment is to a Person that,
immediately prior to such assignment, was a Lender, $5,000,000), unless a
lesser amount shall be approved by the Administrative Agent and the Borrowers
in their reasonable judgment, and shall be an integral multiple of $1,000,000,
(ii) except in the case of an assignment of all of a Lender's rights and
obligations under this Agreement, the amount of the Commitment of the assigning
Lender being retained after giving effect to any such assignment (determined as
of the date of the Assignment and Acceptance with respect to such assignment)
shall in no event be less than $10,000,000, (iii) each such assignment shall be
to an Eligible Assignee and (iv) the parties to each such assignment shall
execute and deliver to the Administrative Agent, for its
<PAGE> 89
84
acceptance and recording in the Register, an Assignment and Acceptance,
together with any Note or Notes subject (except in the case of an Affiliate of
a Lender) to such assignment and a processing and recordation fee of $3,000.
Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in such Assignment and Acceptance, (x) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and (y) the
Lender assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from such obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrowers or the performance or observance by the Borrowers of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon any Agent, such assigning Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (v) such assignee confirms that it is an Eligible Assignee or
an Affiliate of the assignor; (vi) such assignee appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to exercise
such powers and discretion under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all of the obligations that
by the terms of this Agreement are required to be performed by it as a Lender.
(c) The Administrative Agent shall maintain at its address referred to in
Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted
by it and a register for the recordation of the names and addresses of the
Lenders and the Commitment
<PAGE> 90
85
under each Facility of, and principal amount of the Advances owing under each
Facility to, each Lender from time to time (the "Register"). The entries in the
Register shall be conclusive and binding for all purposes, absent manifest
error, and the Borrowers, each Agent and the Lenders may treat each Person
whose name is recorded in the Register as a Lender hereunder for all purposes
of this Agreement. The Register shall be available for inspection by the
Borrowers or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee, together with any Note or Notes subject to
such assignment, the Administrative Agent shall, if such Assignment and
Acceptance has been completed and is in substantially the form of Exhibit C
hereto, (i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof to the
Borrowers. Within five Business Days after its receipt of such notice, the
Borrowers, at their own expense, shall execute and deliver to the
Administrative Agent in exchange for the surrendered Note or Notes a new Note
or Notes to the order of such Eligible Assignee in an amount equal to the
Commitment assumed by it under a Facility or Facilities pursuant to such
Assignment and Acceptance and, if the assigning Lender has retained a
Commitment hereunder under such Facility or Facilities, a new Note or Notes to
the order of the assigning Lender in an amount equal to the Commitment retained
by it hereunder. Such new Note or Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Note or
Notes, shall be dated the effective date of such Assignment and Acceptance and
shall otherwise be in substantially the form of Exhibit A-1 or A-2 hereto.
(e) Each Lender may sell participations in or to all or a portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Commitment or Commitments, the Advances owing to it and the
Note or Notes held by it); provided, however, that (i) such Lender's
obligations under this Agreement (including, without limitation, its Commitment
or Commitments) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, (iii) such Lender shall remain the holder of any such Note or
Notes for all purposes of this Agreement, (iv) the Borrowers, the Agents and
the other Lenders shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under this Agreement
and (v) no participant under any such participation shall have any right to
approve any amendment or waiver of any provision of this Agreement or any Note,
or any consent to any departure by any Borrower therefrom, except to the extent
that such amendment, waiver or consent would (A) reduce the principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, in each
case to the extent subject to such participation or (B) postpone any date fixed
for any payment of principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation. If the Administrative Agent or such Lender shall request
<PAGE> 91
86
the written consent of such participant to any of the actions set forth in this
paragraph (e), and shall not receive either the consent thereto or denial
thereof in writing within five Business Days of making such request, such
participant shall be deemed to have given its consent.
(f) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 8.07, disclose to
the assignee or participant or proposed assignee or participant, any
information relating to the Borrowers furnished to such Lender by or on behalf
of the Borrowers; provided, however, that, prior to any such disclosure, the
assignee or participant or proposed assignee or participant shall agree to
preserve the confidentiality of any Confidential Information received by it
from such Lender.
(g) Notwithstanding any other provision set forth in this Agreement, any
Lender may at any time create a security interest in all or any portion of its
rights under this Agreement (including, without limitation, the Advances owing
to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
(h) The Borrowers and each Lender agree that, at the request of the
Administrative Agent, the Borrowers or such Lender will reexecute this
Agreement to reflect the assignments that have been effected in accordance with
this Section 8.07.
SECTION 8.08. Governing Law. This Agreement and the Notes shall be
governed by, and construed in accordance with, the laws of the State of New
York.
SECTION 8.09. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of a manually executed counterpart of
this Agreement.
SECTION 8.10. No Liability of the Issuing Bank. The Borrowers assume all
risks of the acts or omissions of any beneficiary or transferee of any Letter
of Credit with respect to its use of such Letter of Credit. Neither the Issuing
Bank nor any of its officers or directors shall be liable or responsible for:
(a) the use that may be made of any Letter of Credit or any acts or omissions
of any beneficiary or transferee in connection therewith; (b) the validity,
sufficiency or genuineness of documents, or of any endorsement thereon, even if
such documents should prove to be in any or all respects invalid, insufficient,
fraudulent or forged; (c) payment by the Issuing Bank against presentation of
documents that do not comply with the terms of a Letter of Credit, including
failure of any documents to
<PAGE> 92
87
bear any reference or adequate reference to the Letter of Credit; or (d) any
other circumstances whatsoever in making or failing to make payment under any
Letter of Credit, except that the Borrowers shall have a claim against the
Issuing Bank, and the Issuing Bank shall be liable to the Borrowers, to the
extent of any direct, but not consequential, damages suffered by the Borrowers
that the Borrowers prove were caused by (i) the Issuing Bank's willful
misconduct or gross negligence in determining whether documents presented under
any Letter of Credit comply with the terms of the Letter of Credit or (ii) the
Issuing Bank's willful failure to make lawful payment under a Letter of Credit
after the presentation to it of a draft and certificates strictly complying
with the terms and conditions of the Letter of Credit. In furtherance and not
in limitation of the foregoing, the Issuing Bank may accept documents that
appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary.
SECTION 8.11. Confidentiality. Neither any Agent nor any Lender shall
disclose any Confidential Information to any Person without the consent in
writing of the Borrowers, other than (a) to the Agents' or such Lender's
Affiliates and their officers, directors, employees, agents and advisors and to
actual or prospective Eligible Assignees and participants, and then only on a
confidential basis, (b) as required by any law, rule or regulation or judicial
process provided that unless contrary to applicable law or court order, the
Agents and each Lender shall use reasonable efforts prior to the disclosure of
Confidential Information to notify the Borrowers of each request under this
clause (b) made by a government authority (other than in connection with an
examination of the Agents or such Lender) or pursuant to legal process and (c)
as requested or required by any state, federal or foreign authority or examiner
regulating banks or banking.
SECTION 8.12. Jurisdiction, Etc. (a) Each of the parties hereto hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or federal court of the
United States of America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
Agreement or the Notes, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in any such New York State court or, to the extent permitted by law,
in such federal court. Each Borrower hereby further irrevocably consents to the
service of process in any action or proceeding in such courts by the mailing
thereof by any parties hereto by registered or certified mail, postage prepaid,
to such Borrower at its address specified pursuant to Section 8.02. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement
shall affect any right that any party may otherwise have to serve legal process
in any other manner permitted by law or to bring any action or proceeding
relating to this Agreement or the Notes in the courts of any jurisdiction.
<PAGE> 93
88
(b) Each of the parties hereto irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the Notes in any New
York State or federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
SECTION 8.13. Waiver of Jury Trial. Each of the Borrowers, the Agents, the
Issuing Bank, the Swing Line Bank and the Lenders hereby irrevocably waives all
right to trial by jury in any action, proceeding or counterclaim (whether based
on contract, tort or otherwise) arising out of or relating to any of the Loan
Documents, the Advances or the actions of any Agent or any Lender in the
negotiation, administration, performance or enforcement thereof.
<PAGE> 94
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
GENERAL NUTRITION, INCORPORATED,
as Borrower
By /s/
-----------------------------
Title:
GENERAL NUTRITION CORPORATION,
as Borrower
By /s/
-----------------------------
Title: President
By /s/
-----------------------------
Title: Treasurer
GENERAL NUTRITION COMPANIES, INC.
By /s/
-----------------------------
Title:
<PAGE> 95
BANQUE NATIONALE DE PARIS,
as Administrative Agent and Documentation
Agent
By /s/
-----------------------------
Title: Executive Vice President
By /s/
-----------------------------
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION,
as Syndication Agent
By /s/
-----------------------------
Title: Vice President
ABN AMRO BANK N.V.,
as Syndication Agent
By /s/
-----------------------------
Title: Group Vice President and Director
By /s/
-----------------------------
Title:
<PAGE> 96
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
as Co-Agent
By /s/
-----------------------------
Title: Vice President
FLEET NATIONAL BANK
as Co-Agent
By /s/
------------------------------
Title: Assistant Vice President
THE FUJI BANK, LIMITED, NEW YORK BRANCH
as Co-Agent
By /s/
------------------------------
Title: Vice President & Manager
THE SUMITOMO BANK, LIMITED
as Co-Agent
By /s/
------------------------------
Title: Vice President and Manager
By /s/
------------------------------
Title:
<PAGE> 97
UNITED STATES NATIONAL BANK OF OREGON
as Co-Agent
By /s/
------------------------------
Title: Vice President
The Restatement Lenders
ABN AMRO BANK N.V.
By /s/
------------------------------
Title: Group Vice President and Director
By /s/
------------------------------
Title: Group Vice President and
Operations Manager
BANQUE NATIONALE DE PARIS
By /s/
------------------------------
Title: Executive Vice President
By /s/
------------------------------
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By /s/
------------------------------
Title: Vice President
<PAGE> 98
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By /s/
-------------------------------
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By /s/
-------------------------------
Title: Senior Vice President
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By /s/
-------------------------------
Title: Vice President
FLEET NATIONAL BANK
By /s/
-------------------------------
Title: Assistant Vice President
KEYBANK NATIONAL ASSOCIATION
By /s/
-------------------------------
Title: Assistant Vice President
<PAGE> 99
MELLON BANK, N.A.
By /s/
-----------------------------
Title: Vice President
MITSUBISHI TRUST & BANKING CORPORATION
(U.S.A.)
By /s/
-----------------------------
Title: First Vice President
NATIONAL CITY BANK OF PENNSYLVANIA
By /s/
-----------------------------
Title: Vice President
THE BANK OF NEW YORK
By /s/
-----------------------------
Title: Vice President
THE DAI-ICHI KANGYO BANK, LTD.
By /s/
-----------------------------
Title: Vice President
<PAGE> 100
THE FUJI BANK, LIMITED, NEW YORK BRANCH
By /s/
------------------------------
Title: Vice President & Manager
THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY
By /s/
-----------------------------
Title: Senior Vice President
THE SANWA BANK, LIMITED, NEW YORK BRANCH
By /s/
----------------------------
Title: Assistant Vice President
THE SUMITOMO BANK, LIMITED
By /s/
----------------------------
Title: Vice President and Manager
By /s/
----------------------------
Title: Vice President
<PAGE> 101
THE SUMITOMO TRUST & BANKING CO., LTD., NEW
YORK BRANCH
By /s/
-----------------------------
Title: Senior Vice President
Manager, Corporate Finance Dept.
THE TOYO TRUST AND BANKING CO. LTD.
By /s/
-----------------------------
Title: Vice President
THE YASUDA TRUST AND BANKING CO., LTD., NEW
YORK BRANCH
By /s/
----------------------------
Title: Senior Vice President
UNITED STATES NATIONAL BANK OF OREGON
By /s/
-----------------------------
Title:
WELLS FARGO BANK, N.A.
By /s/
----------------------------
Title: Vice President
By /s/
-----------------------------
Title: Assistant Vice President
<PAGE> 102
BANQUE PARIBAS
By /s/
---------------------------
Title: Vice President
By /s/
---------------------------
Title: Group Vice President
CIBC INC.
By /s/
-----------------------------
Title: Director
NATIONAL AUSTRALIA BANK LIMITED
By /s/
----------------------------
Title: Vice President
WACHOVIA BANK OF GEORGIA, N.A.
By /s/
-----------------------------
Title: Vice President
<PAGE> 103
EXHIBIT A-1
TO THE FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
FORM OF AMENDED AND RESTATED REVOLVING CREDIT NOTE
Dated: March __, 1997
FOR VALUE RECEIVED, the undersigned, [General Nutrition, Incorporated]
[General Nutrition Corporation], a Pennsylvania corporation (the "Borrower"),
HEREBY PROMISES TO PAY to the order of ____________________(the "Lender") for
the account of its Applicable Lending Office (as defined in the Credit Agreement
referred to below) the aggregate principal amount of the Revolving Credit
Advances (as defined below) owing to the Lender by the Borrower pursuant to the
Credit Agreement (as defined below) on March 31, 2002.
The Borrower promises to pay interest on the unpaid principal amount of
each Revolving Credit Advance from the date of such Revolving Credit Advance
until such principal amount is paid in full, at such interest rates, and
payable at such times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Banque Nationale de Paris, as Administrative Agent, at the
Federal Reserve Bank of New York, 33 Liberty Street, New York, New York 10048,
Account No. 75042070103 in same day funds. Each Revolving Credit Advance owing
to the Lender by the Borrower and the maturity thereof, and all payments made
on account of principal thereof, shall be recorded by the Lender and, prior to
any transfer hereof, endorsed on the grid attached hereto, which is part of
this Promissory Note.
This Promissory Note is one of the Revolving Credit Notes referred to in,
and is entitled to the benefits of, the Fourth Amended and Restated Credit
Agreement dated as of March __, 1997 (the "Credit Agreement") among the
Borrower, [General Nutrition, Incorporated] [General Nutrition Corporation],
General Nutrition Companies, Inc., the Lender, the Co-Agents and certain other
lenders parties thereto, and Banque Nationale de Paris, as Administrative Agent
for the Lender and such other lenders. The Credit Agreement, among other
things, (i) provides for the making of revolving credit advances (the
"Revolving Credit Advances") by the Lender to the Borrower from time to time in
an aggregate amount not to exceed, at any time outstanding, the dollar amount
first above mentioned, the indebtedness of the Borrower resulting from each
such Revolving Credit Advance being evidenced by this Promissory Note, and (ii)
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments on account of principal
hereof prior to the maturity hereof upon the terms and conditions therein
specified.
<PAGE> 104
2
This Promissory Note shall be governed by, and construed in accordance
with, the laws of the State of New York.
[GENERAL NUTRITION, INCORPORATED]
[GENERAL NUTRITION CORPORATION]
By
Title:
<PAGE> 105
ADVANCES AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of
Amount of Principal Paid Unpaid Principal Notation
Date Advance or Prepaid Balance Made by
- ---------------- ----------------------- --------------------------- ----------------------------- -------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 106
EXHIBIT A-2
TO THE FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
FORM OF SWING LINE NOTE
$__________________ Dated: March __, 1997
FOR VALUE RECEIVED, the undersigned, [General Nutrition, Incorporated]
[General Nutrition Corporation], a Pennsylvania corporation (the "Borrower"),
HEREBY PROMISES TO PAY to the order of _______________________ (the "Swing Line
Bank") for the account of its Applicable Lending Office (as defined in the
Credit Agreement referred to below) the aggregate principal amount of the Swing
Line Advances (as defined below) owing to the Swing Line Bank by the Borrower
pursuant to the Credit Agreement (as defined below) on March 31, 2002.
The Borrower promises to pay interest on the unpaid principal amount of
each Swing Line Advance from the date of such Swing Line Advance until such
principal amount is paid in full, at such interest rates, and payable at such
times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Banque Nationale de Paris, as Administrative Agent, at the
Federal Reserve Bank of New York, 33 Liberty Street, New York, New York 10048,
Account No. 75042070103, in same day funds. Each Swing Line Advance owing to
the Swing Line Bank by the Borrower and the maturity thereof, and all payments
made on account of principal thereof, shall be recorded by the Swing Line Bank
and, prior to any transfer hereof, endorsed on the grid attached hereto, which
is part of this Promissory Note.
This Promissory Note is one of the Revolving Credit Notes referred to in,
and is entitled to the benefits of, the Fourth Amended and Restated Credit
Agreement dated as of March __, 1997 (the "Credit Agreement") among the
Borrower, [General Nutrition, Incorporated] [General Nutrition Corporation],
General Nutrition Companies, Inc., the Lender, the Co-Agents and certain other
lenders parties thereto, and Banque Nationale de Paris, as Administrative Agent
for the Swing Line Bank and such other lenders. The Credit Agreement, among
other things, (i) provides for the making of swing line advances (the "Swing
Line Advances") by the Swing Line Bank to the Borrower from time to time in an
aggregate amount not to exceed, at any time outstanding, the U.S. dollar amount
first above mentioned, the indebtedness of the Borrower resulting from each
such Swing Line Advance being evidenced by this Promissory Note, and (ii)
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments on account of principal
hereof prior to the maturity hereof upon the terms and conditions therein
specified.
<PAGE> 107
2
This Promissory Note shall be governed by, and construed in accordance
with, the laws of the State of New York.
[GENERAL NUTRITION, INCORPORATED]
[GENERAL NUTRITION CORPORATION]
By
Title:
<PAGE> 108
EXHIBIT B
TO THE FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
FORM OF NOTICE OF BORROWING
Banque Nationale de Paris,
as Administrative Agent
for the Lenders party
to the Credit Agreement
referred to below
499 Park Avenue
New York, NY 10022 [Date]
Attention: Ms. Julia Posada
Ladies and Gentlemen:
The undersigned, [General Nutrition, Incorporated] [General Nutrition
Corporation], refers to the Fourth Amended and Restated Credit Agreement, dated
as of March 31, 1997 (the "Credit Agreement", the terms defined therein being
used herein as therein defined), among the undersigned, [General Nutrition,
Incorporated] [General Nutrition Corporation], General Nutrition Companies,
Inc., certain Lenders party thereto, the Co- Agents, the Syndication Agents and
Banque Nationale de Paris ("BNP"), as Administrative Agent and Documentation
Agent for said Lenders, and BNP as swing line bank, and hereby gives you
notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that the
undersigned hereby requests a Borrowing under the Credit Agreement, and in that
connection sets forth below the information relating to such Borrowing (the
"Proposed Borrowing") as required by Section 2.02(a) of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is ___________ , 19__
(ii) The Facility under which the Proposed Borrowing is requested is the
_____________ Facility.
(iii) The Type of Advances comprising the Proposed Borrowing is [Base Rate
Advances] [Eurodollar Rate Advances].
(iv) The aggregate amount of the Proposed Borrowing is [$_________]
<PAGE> 109
2
[(v) The initial Interest Period for each Eurodollar Rate Advance made as
part of the Proposed Borrowing is ________ month[s].]
The undersigned hereby certifies that the following statements are true on
the date hereof and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in each Loan Document are
correct, before and after giving effect to the Proposed Borrowing and to the
application of the proceeds therefrom, as though made on and as of such date;
and
(B) no event has occurred and is continuing, or would result from such
Proposed Borrowing or from the application of the proceeds therefrom, that
constitutes a Default.
Very truly yours,
[GENERAL NUTRITION, INCORPORATED]
[GENERAL NUTRITION CORPORATION]
By_______________________________
Title:
<PAGE> 110
EXHIBIT C
TO THE FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the Fourth Amended and Restated Credit Agreement
dated as of March 31, 1997 (the "Credit Agreement") among General Nutrition,
Incorporated and General Nutrition Corporation, each a Pennsylvania corporation
(collectively, the "Borrowers"), General Nutrition Companies, Inc., the Lenders
(as defined in the Credit Agreement), Banque Nationale de Paris ("BNP"), as
administrative agent (the "Administrative Agent") and documentation agent for
the Lenders, the Syndication Agents (as defined in the Credit Agreement), the
Co-Agents (as defined in the Credit Agreement), and BNP as swing line bank.
Terms defined in the Credit Agreement are used herein with the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule 1 agree as
follows:
1. The Assignor hereby sells and assigns to the Assignee, and the Assignee
hereby purchases and assumes from the Assignor, an interest in and to the
Assignor's rights and obligations under the Credit Agreement as of the date
hereof equal to the percentage interest specified on Schedule 1 of all
outstanding rights and obligations under the Credit Agreement Facility or
Facilities specified on Schedule 1. After giving effect to such sale and
assignment, the Assignee's Commitments and the amount of the Advances owing
to the Assignee will be as set forth on Schedule 1.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim; (ii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Loan Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Loan Documents or any other
instrument or document furnished pursuant thereto; (iii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of any Loan Party or the performance or observance by
any Loan Party of any of its obligations under the Loan Documents or any
other instrument or document furnished pursuant thereto; and (iv) shall,
within three Business Days from the date specified in Section 4 below,
deliver the Note or Notes held by the Assignor and requests that the
Administrative Agent exchange such Note or Notes for a new Note or Notes
payable to the order of the Assignee in an amount equal to the Commitment or
Commitments assumed by the Assignee pursuant hereto and the Assignor in an
amount equal to the Commitment or Commitments retained by the Assignor under
the Credit Agreement, respectively, as specified on Schedule 1.
<PAGE> 111
2
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 4.01 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter
into this Assignment and Acceptance; (ii) agrees that it will, independently
and without reliance upon the Administrative Agent, the Assignor or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking
or not taking action under the Credit Agreement; (iii) confirms that it is
an Eligible Assignee; (iv) appoints and authorizes the Administrative Agent
to take such action as agent on its behalf and to exercise such powers and
discretion under the Credit Agreement as are delegated to the Administrative
Agent by the terms thereof, together with such powers and discretion as are
reasonably incidental thereto; (v) agrees that it will perform in accordance
with their terms all of the obligations that by the terms of the Credit
Agreement are required to be performed by it as a Lender; and (vi) attaches
any U.S. Internal Revenue Service forms required under Section 2.11.
4. Following the execution of this Assignment and Acceptance by the
Assignee and the Assignor, it will be delivered to the Administrative Agent
for acceptance and recording by the Administrative Agent. The effective date
for this Assignment and Acceptance (the "Effective Date") shall be the date
of acceptance hereof by the Administrative Agent.
5. Upon such acceptance and recording by the Administrative Agent, as of
the Effective Date, (i) the Assignee shall be a party to the Credit
Agreement and, to the extent provided in this Assignment and Acceptance,
have the rights and obligations of a Lender thereunder and (ii) the Assignor
shall, to the extent provided in this Assignment and Acceptance, relinquish
its rights and be released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Administrative Agent, from
and after the Effective Date, the Administrative Agent shall make all
payments under the Credit Agreement and the Notes in respect of the interest
assigned hereby (including, without limitation, all payments of principal,
interest and commitment fees with respect thereto) to the Assignee. The
Assignor and Assignee shall make all appropriate adjustments in payments
under the Credit Agreement and the Notes for periods prior to the Effective
Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of New York.
<PAGE> 112
3
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of Schedule 1 to this Assignment and Acceptance by
telecopier shall be effective as delivery of a manually executed counterpart
of this Assignment and Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1
to this Assignment and Acceptance to be executed by their officers thereunto
duly authorized as of the date specified thereon.
Effective Date: _____________, 19__
[NAME OF ASSIGNOR], as Assignor
By:
Title:
Dated: __________, 19__
[NAME OF ASSIGNEE], as Assignee
By:
Title:
Domestic Lending Office:
Eurodollar Lending Office:
Accepted this ____ day
of __________, 19__
BANQUE NATIONALE DE PARIS,
as Administrative Agent
By:
Title:
<PAGE> 113
SCHEDULE 1
to
ASSIGNMENT AND ACCEPTANCE
As to each Facility in respect of which an interest is being assigned:
Section 1.
Facility: _____
Percentage interest of all
outstanding rights and obligations
of the Facility being assigned: _____%
Section 2.
(a) Assigned Advances
Aggregate outstanding principal amount of Revolving Credit
Advances assigned: $_____________________
(b) Retained Advances
Aggregate outstanding principal amount of Revolving Credit
Advances retained: $_____________________
<PAGE> 114
EXHIBIT D TO THE FOURTH AMENDED AND RESTATED
CREDIT AGREEMENT AS SEPARATELY EXECUTED
FOURTH AMENDED AND RESTATED PARENT GUARANTY
Dated as of March 31, 1997
from
GENERAL NUTRITION COMPANIES, INC.
and
GENERAL NUTRITION, INCORPORATED,
as Guarantors,
in favor of
THE LENDERS PARTY TO THE
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
REFERRED TO HEREIN
and
BANQUE NATIONALE DE PARIS,
as Administrative Agent and as Documentation Agent
and as Issuing Bank and as Swing Line Bank,
and
PNC BANK, NATIONAL ASSOCIATION and ABN AMRO BANK N.V.
as Syndication Agents,
and
THE SUMITOMO BANK, LIMITED, FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, THE FUJI BANK, LIMITED, NEW YORK BRANCH, FLEET NATIONAL
BANK and UNITED STATES NATIONAL BANK OF OREGON,
as Co-Agents
<PAGE> 115
T A B L E O F C O N T E N T S
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
SECTION 1. Guaranty; Limitation on Liability........................ 2
SECTION 2. Guaranty Absolute........................................ 3
SECTION 3. Waivers.................................................. 4
SECTION 4. Payments Free and Clear of Taxes, Etc.................... 5
SECTION 5. Representations and Warranties........................... 6
SECTION 6. Affirmative Covenants.................................... 7
SECTION 7. Negative Covenants....................................... 8
SECTION 8. Amendments, Etc.......................................... 10
SECTION 9. Notices, Etc............................................. 10
SECTION 10. No Waiver; Remedies...................................... 11
SECTION 11. Right of Setoff.......................................... 11
SECTION 12. Continuing Guaranty; Assignments Under the Fourth Amended
and Restated Credit Agreement........................ 11
SECTION 13. Governing Law............................................ 12
SECTION 14. Execution in Counterparts................................ 12
</TABLE>
<PAGE> 116
FOURTH AMENDED AND RESTATED PARENT GUARANTY
FOURTH AMENDED AND RESTATED PARENT GUARANTY, dated as of March 31, 1997,
made by GENERAL NUTRITION COMPANIES, INC., a Delaware corporation ("GNCI") and
General Nutrition, Incorporated ("GNI"; GNI and GNCI each being a "Guarantor";
collectively being the "Guarantors"), in favor of the Lenders (the "Lenders")
party to the Fourth Amended and Restated Credit Agreement referred to below and
Banque Nationale de Paris ("BNP"), as administrative agent (together with any
successor appointed pursuant to Article VII of the Fourth Amended and Restated
Credit Agreement, being the "Administrative Agent") and as documentation agent
(the "Documentation Agent"), PNC Bank, National Association and ABN AMRO Bank
N.V., as syndication agents (the "Syndication Agents"), The Sumitomo Bank,
Limited, First Union National Bank of North Carolina, The Fuji Bank, Limited,
New York Branch, Fleet National Bank and United States National Bank of Oregon,
as co-agents (the "Co-Agents," and together with the Administrative Agent, the
Documentation Agent and the Syndication Agents the "Agents"), and BNP, as
issuing bank (the "Issuing Bank") and as swing line bank (the "Swing Line
Bank"), and any Lender that has entered into a Hedge Agreement with any Loan
Party (together with the Lenders, the Agents, the Swing Line Bank and the
Issuing Bank, the "Lender Parties" and each individually, a "Lender Party").
PRELIMINARY STATEMENTS:
(1) This Fourth Amended and Restated Guaranty is intended to continue the
guaranty in favor of the Lender Parties and BNP given by the Guarantors
pursuant to the Existing Guaranty (as hereinafter defined) without any
interruption.
(2) GNI and GNI's wholly owned Subsidiary, General Nutrition Corporation,
a Pennsylvania corporation ("GNC"; and together with GNI, collectively the
"Borrowers"), have entered into a Credit Agreement dated as of January 18,
1993, which Credit Agreement was amended and restated pursuant to the Second
Amended and Restated Credit Agreement dated as of July 19, 1994, which was
further amended and restated pursuant to the Third Amended and Restated Credit
Agreement dated as of March 21, 1996, (the "Existing Credit Agreement") with
the lenders referred to therein (the "Existing Lenders") and BNP, as agent for
the Existing Lenders.
(3) In connection with the Existing Credit Agreement, the Guarantors have
previously entered into the Third Amended and Restated GNCI Guaranty dated as
of July 21,
<PAGE> 117
2
1994 (the "Existing Guaranty") in favor of the Existing Lenders, the Existing
Lenders that have entered into a Hedge Agreement with any Loan Party referred
to therein, and BNP, as administrative agent for the Existing Lenders.
(4) The Existing Credit Agreement is being further amended and restated
pursuant to a Fourth Amended and Restated Credit Agreement dated as of March
31, 1997 (said agreement, as it may hereafter be amended or otherwise modified
from time to time, being the "Fourth Amended and Restated Credit Agreement",
the terms defined therein and not otherwise defined herein being used herein as
therein defined) among the Borrowers, the Lenders party thereto as Restatement
Lenders, the Agents, the Issuing Bank and the Swing Line Bank.
(5) It is a condition precedent to the effectiveness of the Fourth Amended
and Restated Credit Agreement that, on the Restatement Date, the Guarantors
shall have executed and delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Restatement Lenders to make Advances and the Issuing Bank to issue Letters
of Credit under the Fourth Amended and Restated Credit Agreement, the
Guarantors hereby agree as follows:
SECTION 1. Guaranty; Limitation on Liability. (a) Each of the Guarantors
hereby absolutely, unconditionally and irrevocably guarantees the punctual
payment when due, whether at stated maturity, by acceleration or otherwise, of
all Obligations of the Loan Parties now or hereafter existing under the Loan
Documents, whether for principal, interest, fees, expenses or otherwise (such
Obligations being the "Guaranteed Obligations"), and agrees to pay any and all
reasonable expenses (including reasonable counsel fees and expenses) incurred
by the Administrative Agent or the other Lender Parties in enforcing any rights
under this Guaranty or any other Loan Document. Without limiting the generality
of the foregoing, the liability of each of the Guarantors shall extend to all
amounts that constitute part of the Guaranteed Obligations and would be owed by
the Loan Parties to the Administrative Agent or the Lender Parties under the
Loan Documents but for the fact that they are unenforceable or not allowable
due to the existence of a bankruptcy, reorganization or similar proceeding
involving such Loan Party.
(b) Each Guarantor agrees that in the event any payment shall be required
to be made to the Lender Parties under this Guaranty or any other guaranty,
such Guarantor will contribute, to the maximum extent permitted by law, such
amounts to each other Guarantor and each other guarantor so as to maximize the
aggregate amount paid to the Lender Parties under the Loan Documents.
<PAGE> 118
3
SECTION 2. Guaranty Absolute. Each of the Guarantors guarantees that the
Guaranteed Obligations will be paid strictly in accordance with the terms of
the Loan Documents, regardless of any law, regulation or order now or hereafter
in effect in any jurisdiction affecting any of such terms or the rights of the
Administrative Agent or any other Lender Party with respect thereto. The
Obligations of each of the Guarantors under this Guaranty are independent of
the Guaranteed Obligations or any other Obligations of any other Loan Party
under the Loan Documents, and a separate action or actions may be brought and
prosecuted against each such Guarantor to enforce this Guaranty, irrespective
of whether any action is brought against either Borrower or any other Loan
Party or whether the Borrowers are joined in any such action or actions. The
liability of each of the Guarantors under this Guaranty shall be absolute and
unconditional irrespective of:
(a) any lack of validity or enforceability of any Loan Document or any
agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Guaranteed Obligations or any other Obligations
of any other Loan Party under the Loan Documents, or any other amendment or
waiver of or any consent to departure from any Loan Document, including,
without limitation, any increase in the Guaranteed Obligations resulting
from the extension of additional credit to any of the Loan Parties or
otherwise;
(c) any taking, exchange, release or nonperfection of any collateral, or
any taking, release, amendment or waiver of or consent to departure from any
other guaranty, for all or any of the Guaranteed Obligations;
(d) any manner of application of collateral, or proceeds thereof, to all
or any of the Guaranteed Obligations, or any manner of sale or other
disposition of any collateral for all or any of the Guaranteed Obligations
or any other assets of either of the Borrowers or any of their Subsidiaries;
(e) any change, restructuring or termination of the corporate structure or
existence of the Loan Parties or any of their Subsidiaries; or
(f) any other circumstance (including, without limitation, any statute of
limitations) that might otherwise constitute a defense available to, or a
discharge of, either of the Borrowers or a Guarantor or any other guarantor
or surety.
This Guaranty shall continue to be effective or to be reinstated, as the case
may be, if at any time any payment of any of the Guaranteed Obligations is
rescinded or must otherwise be returned by the Administrative Agent or any of
the other Lender Parties upon the insolvency,
<PAGE> 119
4
bankruptcy or reorganization of either of the Borrowers or any other Loan Party
or otherwise, all as though such payment had not been made.
SECTION 3. Waivers. (a) Each of the Guarantors hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Guaranteed Obligations and this Guaranty and any requirement that the
Administrative Agent or any other Lender Party protect, secure, perfect or
insure any Lien or any property subject thereto or exhaust any right or take
any action against either of the Borrowers or any other Person or any
collateral.
(b) Each of the Guarantors hereby irrevocably waives all right to trial by
jury in any action, proceeding or counterclaim (whether based on contract, tort
or otherwise) arising out of or relating to any of the Loan Documents or any of
the transactions contemplated thereby, or the actions of the Administrative
Agent or any other Lender Party in the negotiation, administration, performance
or enforcement thereof.
(c) Each of the Guarantors hereby irrevocably waives any duty on the part
of the Administrative Agent or any other Lender Party to disclose to such
Guarantor any matter, fact or thing relating to the business, operation or
condition of either of the Borrowers and their respective assets now or
hereafter known by the Administrative Agent or any other Lender Party.
(d) Each of the Guarantors hereby irrevocably waives any claim or other
rights that it may now or hereafter acquire against either of the Borrowers or
any other insider guarantor that arise from the existence, payment, performance
or enforcement of each Guarantor's Obligations under this Guaranty or any other
Loan Document, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification and any right to
participate in any claim or remedy of the Administrative Agent or any other
Lender Party against either of the Borrowers or any other insider guarantor or
any collateral, whether or not such claim, remedy or right arises in equity or
under contract, statute or common law, including, without limitation, the right
to take or receive from either of the Borrowers or any other insider guarantor,
directly or indirectly, in cash or other property or by setoff or in any other
manner, payment or security on account of such claim, remedy or right. If any
amount shall be paid to any Guarantor in violation of the preceding sentence at
any time prior to the later of (i) the payment in full in cash of the
Guaranteed Obligations and all other amounts payable under this Guaranty and
(ii) the Termination Date, such amount shall be held in trust for the benefit
of the Administrative Agent and the other Lender Parties and shall forthwith be
paid to the Administrative Agent to be credited and applied to the Guaranteed
Obligations and all other amounts payable under this Guaranty, whether matured
or unmatured, in accordance with the terms of the Loan Documents, or to be held
as collateral for any Guaranteed Obligations or other amounts payable under
this Guaranty thereafter arising. Each of the Guarantors acknowledges that it
<PAGE> 120
5
will receive direct and indirect benefits from the financing arrangements
contemplated by the Loan Documents and that the waiver set forth in this
subsection (d) is knowingly made in contemplation of such benefits.
SECTION 4. Payments Free and Clear of Taxes, Etc. (a) Any and all payments
made by either Guarantor hereunder shall be made, in accordance with Section
2.11 of the Fourth Amended and Restated Credit Agreement, free and clear of and
without deduction for any and all present or future Taxes. If such Guarantor
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder to the Administrative Agent or any other Lender Party, (i)
the sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 4), such Lender Party or Administrative Agent, as the case
may be, receives an amount equal to the sum it would have received had no such
deductions been made, (ii) such Guarantor shall make such deductions and (iii)
such Guarantor shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) In addition, each of the Guarantors agrees to pay any present or
future Other Taxes.
(c) The Guarantors jointly and severally agree to indemnify the
Administrative Agent and each other Lender Party for the full amount of Taxes
or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed
by any jurisdiction on amounts payable under this Section 4) paid by the
Administrative Agent or such other Lender Party, as the case may be, and any
liability (including penalties, additions to tax, interest and expenses)
arising therefrom or with respect thereto. This indemnification shall be made
within 30 days from the date the Administrative Agent or such other Lender
Party, as the case may be, makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, each of the
Guarantors will furnish to the Administrative Agent, at its address referred to
in Section 8.02 of the Fourth Amended and Restated Credit Agreement,
appropriate evidence of payment thereof. If no Taxes are payable in respect of
any payment hereunder by or on behalf of such Guarantor through an account or
branch outside the United States or on behalf of such Guarantor by a payor that
is not a United States person (as defined in Section 2.11(d) of the Fourth
Amended and Restated Credit Agreement), such Guarantor will furnish, or will
cause such payor to furnish, to the Administrative Agent a certificate from
each appropriate taxing authority or authorities, or an opinion of counsel
acceptable to the Administrative Agent, in either case stating that such
payment is exempt from or not subject to Taxes.
(e) Without prejudice to the survival of any other agreement of any
Guarantor hereunder, the agreements and obligations of such Guarantor contained
in this Section 4 shall
<PAGE> 121
6
survive the payment in full of the Guaranteed Obligations and all other amounts
payable under this Guaranty.
SECTION 5. Representations and Warranties. GNCI hereby represents and
warrants as follows:
(a) Due Incorporation, Etc. GNCI (i) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation, (ii) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which it owns or leases property
or in which the conduct of its business requires it to so qualify or be
licensed, except where the failure to so qualify or be licensed would not
have a Material Adverse Effect and (iii) has all requisite corporate power
and authority to own or lease and operate its properties and to carry on its
business as now conducted and as proposed to be conducted.
(b) Due Authorization and Execution, Etc. The execution, delivery and
performance by GNCI of this Guaranty and the consummation of the
transactions contemplated hereby, are within GNCI's corporate powers, have
been duly authorized by all necessary corporate action, and do not (i)
contravene GNCI's charter or bylaws, (ii) violate any law (including,
without limitation, the Securities Exchange Act of 1934 and the Racketeer
Influenced and Corrupt Organizations Chapter of the Organized Crime Control
Act of 1970), rule, regulation (including, without limitation, Regulations
G, T, U and X of the Board of Governors of the Federal Reserve System),
order, writ, judgment, injunction, decree, determination or award, (iii)
conflict with or result in the breach of, or constitute a default under, any
contract, loan agreement, indenture, mortgage, deed of trust, lease or other
instrument binding on or affecting GNCI or any of its properties or (iv)
result in or require the creation or imposition of any Lien upon or with
respect to any of the properties of GNCI. GNCI is not in violation of any
other law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award or in breach of any such contract, loan agreement,
indenture, mortgage, deed of trust, lease or other instrument, the violation
or breach of which could have a Material Adverse Effect.
(c) Government Consents. No authorization, approval or other action by,
and no notice to or filing with, any governmental authority or regulatory
body or any other third party is required for the due execution, delivery or
performance by GNCI of this Guaranty.
(d) Legal, Valid and Binding Nature. This Guaranty has been duly executed
and delivered, and is the legal, valid and binding obligation of GNCI,
enforceable against GNCI in accordance with its terms.
<PAGE> 122
7
(e) Absence of Litigation. No actions, suits, investigations, litigation
or proceedings are pending or, to the knowledge of GNCI, threatened against
or affecting GNCI or the properties of GNCI before any court, governmental
agency or arbitrator that (i) would reasonably be likely to have a Material
Adverse Effect or (ii) purports to affect the legality, validity or
enforceability of this Guaranty.
(f) Agreements of GNCI. GNCI is not a party to any agreement or other
instrument other than this Guaranty, the Tax Sharing Agreement, the
Intercompany Subordination Agreement and the other Related Documents to
which GNCI is a party, except as contemplated by the Loan Documents.
SECTION 6. Affirmative Covenants. GNCI covenants and agrees that, so long
as any part of the Guaranteed Obligations shall remain unpaid, any Letter of
Credit shall be outstanding or any Lender shall have any Commitment, GNCI will:
(a) Compliance with Laws, Etc. Comply in all material respects with all
applicable laws (including, without limitation, Environmental Laws), rules,
regulations and orders, such compliance to include, without limitation,
compliance with ERISA and the Racketeer Influenced and Corrupt Organizations
Chapter of the Organized Crime Control Act of 1970.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its
Subsidiaries to pay and discharge, before the same shall become delinquent,
(i) all taxes, assessments and governmental charges or levies imposed upon
it or upon its property and (ii) all lawful claims that, if unpaid, might by
law become a Lien upon its property, which in any case exceed in the
aggregate $500,000; provided, however, that GNCI shall be required to pay or
discharge any such tax, assessment, charge, levy or claim that is being
contested in good faith and by proper proceedings, diligently pursued, and
as to which appropriate reserves are being maintained, unless and until any
Lien resulting therefrom securing Indebtedness in excess of $500,000 in the
aggregate attaches to its property and becomes enforceable against its other
creditors.
(c) Preservation of Corporate Existence, Etc. Preserve and maintain its
corporate existence, rights (charter and statutory) and franchises.
(d) Visitation Rights. At any reasonable time and from time to time upon
reasonable notice to GNCI, permit the Administrative Agent or any of the
other Lender Parties, or any agents or representatives thereof, to examine
and make copies of and abstracts from the records and books of account of,
and visit the properties of, GNCI, and to discuss the affairs, finances and
accounts of GNCI with any of its officers or directors and with its
independent certified public accountants; provided
<PAGE> 123
8
that GNCI shall have the right to have a representative of GNCI present
during any discussions with its independent public accountants.
(e) Keeping of Books. Keep proper books of record and account in which
full and correct entries shall be made of all financial transactions and the
assets and business of GNCI in accordance with GAAP.
(f) Performance of Related Documents. (i) Perform and observe in all
material respects all of the terms and provisions of each Related Document
to be performed or observed by it, maintain each such Related Document in
full force and effect and enforce in all material respects each such Related
Document in accordance with its terms, in each case except to the extent
that the failure to so act could not reasonably be expected to adversely
affect the interest or rights of the Administrative Agent or the other
Lender Parties in any manner and take all such action to such end as may be
from time to time reasonably requested by the Administrative Agent and (ii)
upon the reasonable request of the Administrative Agent, make to each other
party to each such Related Document such demands and requests for
information and reports or for action as GNCI is entitled to make under such
Related Document.
(g) Transactions with Affiliates. Conduct all transactions permitted under
the Loan Documents with any of its Affiliates on terms that are fair and
reasonable and no less favorable to GNCI than it would obtain in a
comparable arm's-length transaction with a Person not an Affiliate.
SECTION 7. Negative Covenants. GNCI covenants and agrees that, so long as
any part of the Guaranteed Obligations shall remain unpaid, any Letter of
Credit shall be outstanding or any Lender shall have any Commitment, GNCI will
not:
(a) Business. Enter into or conduct any business or engage in any activity
except (i) the ownership of the capital stock of GNI and (ii) the
performance of its obligations under the documents referred to in Section
5(f) to which it is or is to be a party or otherwise contemplated by the
Loan Documents.
(b) Liens, Etc. Create, incur, assume or suffer to exist, any Lien on or
with respect to any of its properties of any character (including, without
limitation, accounts) whether now owned or hereafter acquired, or sign or
file, under the Uniform Commercial Code of any jurisdiction, a financing
statement that names GNCI or any of its Subsidiaries as debtor, or sign any
security agreement authorizing any secured party thereunder to file such
financing statement, or assign any accounts or other right to receive
income.
<PAGE> 124
9
(c) Indebtedness. Create, incur, assume or suffer to exist, any
Indebtedness other than Indebtedness created by GNCI's obligations under
this Guaranty.
(d) Lease Obligations. Create, incur, assume or suffer to exist any
obligations as lessee for the rental or hire of real or personal property of
any kind.
(e) Mergers, Etc. Merge into or consolidate with any Person or permit any
Person to merge into it, or transfer or dispose of all or substantially all
of its property and assets, except that GNI may merge with or into or
consolidate with or into, or transfer all or substantially all of its
property and assets to GNCI; provided, however, that immediately after
giving effect thereto, no event shall occur and be continuing that
constitutes a Default.
(f) Sales, Etc. of Assets. Sell, lease, transfer or otherwise dispose of
any assets, or grant any option or other right to purchase, lease or
otherwise acquire any assets.
(g) Investments in Other Persons. Make or hold any Investment in any
Person other than (i) Investments in GNI consisting of equity or
Intercompany Subordinated Debt, (ii) Investments outstanding on the date of
this Agreement in Diet Center, Inc. or any Investments issued as a
replacement of or in exchange thereof and (iii) Investments in connection
with its 1996 Management and Stock Purchase Plan, as amended from time to
time, or any similar type management stock option plan.
(h) Charter Amendments. Amend, modify or change in any manner (i) its
certificate of incorporation or (ii) its bylaws (except to increase the
number of authorized shares, to authorize a staggered board of directors and
to provide for anti-takeover provisions) if such amendment, modification or
change could reasonably be expected to adversely affect the interest or
rights of the Administrative Agent or the other Lender Parties in any
manner.
(i) Accounting Changes. Make or permit any change in accounting policies
or reporting practices (including, without limitation, any change in its
fiscal year), except as required or permitted by generally accepted
accounting principles, securities laws or the rules of any stock exchange
upon which GNCI's capital stock may be listed.
(j) Prepayments, Etc. of Indebtedness. Prepay, redeem, purchase, defease
or otherwise satisfy prior to the scheduled maturity thereof in any manner,
or make any payment in violation of any subordination terms of, any
Indebtedness.
<PAGE> 125
10
(k) Amendment, Etc. of Related Documents. Cancel or terminate any Related
Document or consent to or accept any cancellation or termination thereof,
amend, modify or change in any material respect any term or condition of any
Related Document or give any consent, waiver or approval thereunder (it
being acknowledged by GNCI that the financial or payment terms of any such
Related Document are material terms and conditions thereof), waive any
default under or any breach of any term or condition of any Related
Document, agree in any manner to any other amendment, modification or change
of any term or condition of any Related Document or take any other action in
connection with any Related Document, in each case that could reasonably be
expected to impair the value of the interest or rights of GNCI thereunder or
that could reasonably be expected to impair the interest or rights of the
Administrative Agent or the other Lender Parties in any manner.
(l) Negative Pledge. Enter into or suffer to exist any agreement
prohibiting or conditioning the creation or assumption of any Lien upon any
of its property or assets.
(m) Partnerships. Become a general partner in any general or limited
partnership.
SECTION 8. Amendments, Etc. No amendment or waiver of any provision of
this Guaranty and no consent to any departure by any Guarantor therefrom shall
in any event be effective unless the same shall be in writing and signed by the
Administrative Agent and the Required Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Lenders, (a) limit the liability of any
Guarantor hereunder or (b) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Notes, or the number of Lenders, that
shall be required for the Lenders or any of them to take any action hereunder.
SECTION 9. Notices, Etc. All notices and other communications provided for
hereunder shall be in writing (including telegraphic, telecopy, telex or cable
communication) and mailed, telegraphed, telecopied, telexed, cabled or
delivered (a) if to GNCI, addressed to it at 921 Penn Avenue, Pittsburgh,
Pennsylvania 15222, Attention: Chief Financial Officer, (b) if to GNI,
addressed to it at 921 Penn Avenue, Pittsburgh, Pennsylvania 15222, Attention:
Chief Financial Officer, with a copy to Hutchins, Wheeler & Dittmar, A
Professional Corporation, addressed to it at 101 Federal Street, Boston, MA
02110, Attention: Jeffrey S. Wieand or (c) if to the Administrative Agent or
any Lender, at the address of the Administrative Agent or such Lender referred
to in Section 8.02 of the Fourth Amended and Restated Credit Agreement, or as
to any such party at such other address as shall be designated by such party in
a written notice to each other party complying as to delivery with the terms of
this Section 8. All such notices and other communications
<PAGE> 126
11
shall, when mailed, telegraphed, telecopied, telexed or cabled, respectively,
be effective when deposited in the mails, telecopied, delivered to the
telegraph company, transmitted by telecopier, confirmed by telex answerback or
delivered to the cable company, respectively.
SECTION 10. No Waiver; Remedies. No failure on the part of the
Administrative Agent or any other Lender Party to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof or consent
thereto; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The remedies herein provided
are cumulative and not exclusive of any remedies provided by law.
SECTION 11. Right of Setoff. Upon (a) the occurrence and during the
continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Section 6.01 of the Fourth Amended and
Restated Credit Agreement to authorize the Administrative Agent to declare the
Notes due and payable pursuant to the provisions of said Section 6.01, each
Lender is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender to or for the credit or the
account of any of the Guarantors against any and all of the Obligations of such
Guarantor now or hereafter existing under this Guaranty, whether or not such
Lender shall have made any demand under this Guaranty and although such
Obligations may be unmatured. Each Lender agrees promptly to notify each such
Guarantor after any such setoff and application made by such Lender; provided,
however, that the failure to give such notice shall not affect the validity of
such setoff and application. The rights of each Lender under this Section 11
are in addition to other rights and remedies (including, without limitation,
other rights of setoff) that such Lender may have.
SECTION 12. Continuing Guaranty; Assignments Under the Fourth Amended and
Restated Credit Agreement. This Guaranty is a continuing guaranty and shall (a)
remain in full force and effect until the later of (i) the payment in full in
cash of the Guaranteed Obligations and all other amounts payable under this
Guaranty and (ii) the Termination Date, (b) be binding upon each Guarantor, its
successors and assigns and (c) inure to the benefit of and be enforceable by
the Administrative Agent, the other Lender Parties and their respective
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (c), any Lender may assign or otherwise transfer all or any
portion of its rights and obligations under the Fourth Amended and Restated
Credit Agreement (including, without limitation, all or any portion of its
Commitment or Commitments, the Advances owing to it and the Note or Notes held
by it) to any other Person, and such other Person shall thereupon become vested
with all the benefits in respect thereof granted to such Lender, herein or
otherwise, in each case as provided in Section 8.07 of the Fourth Amended and
Restated Credit Agreement.
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12
SECTION 13. Governing Law. This Guaranty shall be governed by, and
construed in accordance with, the laws of the State of New York.
SECTION 14. Execution in Counterparts. This Guaranty may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Guaranty by
telecopier shall be effective as delivery of a manually executed counterpart of
this Guaranty.
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
GENERAL NUTRITION COMPANIES, INC.
By /s/
-----------------------------
Title:
GENERAL NUTRITION, INCORPORATED
By /s/
-----------------------------
Title:
<PAGE> 128
EXHIBIT E TO THE FOURTH AMENDED
AND RESTATED CREDIT AGREEMENT AS SEPARATELY EXECUTED
FOURTH AMENDED AND RESTATED PARENT GUARANTY
Dated as of March 31, 1997
from
GENERAL NUTRITION COMPANIES, INC.
and
GENERAL NUTRITION, INCORPORATED,
as Guarantors,
in favor of
THE LENDERS PARTY TO THE
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
REFERRED TO HEREIN
and
BANQUE NATIONALE DE PARIS,
as Administrative Agent and as Documentation Agent
and as Issuing Bank and as Swing Line Bank,
and
PNC BANK, NATIONAL ASSOCIATION and ABN AMRO BANK N.V.
as Syndication Agents,
and
THE SUMITOMO BANK, LIMITED, FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, THE FUJI BANK, LIMITED, NEW YORK BRANCH, FLEET NATIONAL
BANK and UNITED STATES NATIONAL BANK OF OREGON,
as Co-Agents
<PAGE> 129
T A B L E O F C O N T E N T S
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
SECTION 1. Guaranty; Limitation on Liability....................... 2
SECTION 2. Guaranty Absolute....................................... 3
SECTION 3. Waivers................................................. 4
SECTION 4. Payments Free and Clear of Taxes, Etc................... 5
SECTION 5. Representations and Warranties.......................... 6
SECTION 6. Covenants............................................... 8
SECTION 7. Amendments, Etc......................................... 8
SECTION 8. Notices, Etc............................................ 9
SECTION 9. No Waiver; Remedies..................................... 9
SECTION 10. Right of Setoff......................................... 9
SECTION 11. Continuing Guaranty; Assignments Under the Fourth
Amended and Restated Credit Agreement........... 10
SECTION 12. Governing Law........................................... 10
SECTION 13. Execution in Counterparts............................... 10
</TABLE>
<PAGE> 130
EXECUTION COPY
FOURTH AMENDED AND RESTATED SUBSIDIARY GUARANTY
Dated as of March 31, 1997
from
THE SUBSIDIARY GUARANTORS NAMED HEREIN,
as Guarantors,
in favor of
THE LENDERS PARTY TO THE FOURTH AMENDED
AND RESTATED CREDIT AGREEMENT REFERRED TO HEREIN
and
BANQUE NATIONALE DE PARIS,
as Administrative Agent and Documentation Agent and
Issuing Bank and Swing Line Bank,
and
PNC BANK, NATIONAL ASSOCIATION and ABN AMRO BANK N.V.
as Syndication Agents,
and
THE SUMITOMO BANK, LIMITED, FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, THE FUJI BANK, LIMITED, NEW YORK BRANCH, FLEET NATIONAL
BANK and UNITED STATES NATIONAL BANK OF OREGON
as Co-Agents
<PAGE> 131
FOURTH AMENDED AND RESTATED SUBSIDIARY GUARANTY
FOURTH AMENDED AND RESTATED SUBSIDIARY GUARANTY, dated as of March 31,
1997 made by the Persons listed on the signature pages hereof (each a
"Subsidiary Guarantor"), in favor of the Lenders (the "Lenders") party to the
Fourth Amended and Restated Credit Agreement referred to below and Banque
Nationale de Paris ("BNP"), as administrative agent (together with any
successor agent appointed pursuant to Article VII of the Fourth Amended and
Restated Credit Agreement referred to below, the "Administrative Agent") and as
documentation agent (the "Documentation Agent"), and PNC Bank, National
Association and ABN AMRO Bank N.V., as syndication agents (the "Syndication
Agents"), The Sumitomo Bank, Limited, First Union National Bank of North
Carolina, The Fuji Bank, Limited, New York Branch, Fleet National Bank and
United States National Bank of Oregon, as co-agents (the "Co-Agents,"and,
together with the Administrative Agent, the Documentation Agent and the
Syndication Agents, the "Agents") and BNP, as issuing bank (the "Issuing Bank")
and as swing line bank (the "Swing Line Bank"), and any Lender that has entered
into a Hedge Agreement with any Loan Party (together with the Lenders, the
Agents, the Swing Line Bank, and the Issuing Bank, the "Lender Parties" and,
each individually, a "Lender Party").
PRELIMINARY STATEMENTS:
(1) This Fourth Amended and Restated Subsidiary Guaranty is intended to
continue the guaranty in favor of the Lender Parties and BNP given by the
Subsidiary Guarantors pursuant to the Existing Subsidiary Guaranty (as
hereinafter defined) without any interruption.
(2) General Nutrition, Incorporated, a Pennsylvania corporation ("GNI")
and GNI's wholly owned Subsidiary, General Nutrition Corporation, a
Pennsylvania corporation ("GNC"; and together with GNI, collectively the
"Borrowers") have entered into a Credit Agreement dated as of January 18, 1993,
which Credit Agreement was amended and restated pursuant to the Second Amended
and Restated Credit Agreement dated as of July 19, 1994, which Credit Agreement
was further amended and restated pursuant to the Third Amended and Restated
Credit Agreement dated as of March 21, 1996 (the "Existing Credit Agreement")
with the lenders referred to therein (the "Existing Lenders") and BNP, as agent
for the Existing Lenders.
(3) In connection with the Existing Credit Agreement, the Subsidiary
Guarantors have previously entered into the Third Amended and Restated
Subsidiary Guaranty dated as of March 21, 1997, (the "Existing Subsidiary
Guaranty") in favor of the Existing Lenders, the Lenders that have entered into
a Hedge Agreement with any Loan
<PAGE> 132
2
Party, and BNP, as administrative agent for the Existing Lenders.
(4) The Existing Credit Agreement is being further amended and restated
pursuant to a Fourth Amended and Restated Credit Agreement dated as of March
31, 1997 (said agreement, as it may hereafter be amended or otherwise modified
from time to time, being the "Fourth Amended and Restated Credit Agreement,"
the terms defined therein and not otherwise defined herein being used herein as
therein defined) among the Borrowers, the Lenders party thereto as Restatement
Lenders, the Agents, the Issuing Bank and the Swing Line Bank.
(5) It is a condition precedent to the effectiveness of the Fourth Amended
and Restated Credit Agreement, that on the Restatement Date, each Subsidiary
Guarantor shall have executed and delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Restatement Lenders to make Advances and the Issuing Bank to issue Letters
of Credit under the Fourth Amended and Restated Credit Agreement, each
Subsidiary Guarantor hereby agrees as follows:
SECTION 1. Guaranty; Limitation on Liability. (a) Each of the Subsidiary
Guarantors hereby absolutely, unconditionally and irrevocably guarantees the
punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of all Obligations of the Loan Parties now or hereafter existing
under the Loan Documents, whether for principal, interest, fees, expenses or
otherwise (such Obligations being the "Guaranteed Obligations"), and agrees to
pay any and all reasonable expenses (including reasonable counsel fees and
expenses) incurred by the Administrative Agent or the other Lender Parties in
enforcing any rights under this Guaranty or any other Loan Document. Without
limiting the generality of the foregoing, the liability of each of the
Subsidiary Guarantors shall extend to all amounts that constitute part of the
Guaranteed Obligations and would be owed by the Loan Parties to the
Administrative Agent or the Lender Parties under the Loan Documents but for the
fact that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving such Loan Party.
(b) (i) Each Guarantor and by its acceptance of this Subsidiary Guaranty, the
Agent and each of the other Lender Parties, hereby confirms that it is the
intention of all such parties that this Subsidiary Guaranty not constitute a
fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
federal or state law to the extent applicable to this Subsidiary Guaranty. To
effectuate the foregoing intention, the Agents, the other Lender Parties and
the Subsidiary Guarantors hereby irrevocably agree that the Obligations of each
Subsidiary Guarantor under this Guaranty shall not exceed the greater of (A)
the net benefit realized by such Subsidiary Guarantor from the proceeds of the
Advances made from time to
<PAGE> 133
3
time by the Borrower to such Subsidiary Guarantor or to any subsidiary of such
Subsidiary Guarantor and (B) the maximum amount that will, after giving effect
to such maximum amount and all other contingent and fixed liabilities of such
Subsidiary Guarantor that are relevant under such laws, and after giving effect
to any collections from, rights to receive contribution from or payments made
by or on behalf of any other Subsidiary Guarantor in respect of the Obligations
of such other Subsidiary Guarantor under this Guaranty, result in the
Obligations of such Subsidiary Guarantor under this Subsidiary Guaranty not
constituting a fraudulent transfer or conveyance. For purposes hereof,
"Bankruptcy Law" means Title 11, U.S. Code, or any similar Federal or state law
for the relief of debtors.
(ii) Each Subsidiary Guarantor agrees that in the event any payment shall
be required to be made to the Lender Parties under this Guaranty or any other
guaranty, such Guarantor will contribute, to the maximum extent permitted by
law, such amounts to each other Subsidiary Guarantor and each other guarantor
so as to maximize the aggregate amount paid to the Lender Party under the Loan
Documents.
SECTION 2. Guaranty Absolute. Each of the Subsidiary Guarantors guarantees
that the Guaranteed Obligations will be paid strictly in accordance with the
terms of the Loan Documents, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Administrative Agent or any other Lender Party with respect
thereto. The Obligations of each of the Subsidiary Guarantors under this
Guaranty are independent of the Guaranteed Obligations or any other Obligations
of any other Loan Party under the Loan Documents, and a separate action or
actions may be brought and prosecuted against each such Subsidiary Guarantor to
enforce this Guaranty, irrespective of whether any action is brought against
either Borrower or any other Loan Party or whether the Borrowers are joined in
any such action or actions. The liability of each of the Subsidiary Guarantors
under this Guaranty shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of any Loan Document or any
agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Guaranteed Obligations or any other Obligations
of any Loan Party under the Loan Documents, or any other amendment or waiver
of or any consent to departure from any Loan Document, including, without
limitation, any increase in the Guaranteed Obligations resulting from the
extension of additional credit to any of the Loan Parties or otherwise;
(c) any taking, exchange, release or nonperfection of any collateral, or
any taking, release, amendment or waiver of or consent to departure from any
other
<PAGE> 134
4
guaranty, for all or any of the Guaranteed Obligations;
(d) any manner of application of collateral, or proceeds thereof, to all
or any of the Guaranteed Obligations, or any manner of sale or other
disposition of any collateral for all or any of the Guaranteed Obligations
or any other assets of either of the Borrowers or any of their Subsidiaries;
(e) any change, restructuring or termination of the corporate structure or
existence of the Loan Parties; or
(f) any other circumstance (including, without limitation, any statute of
limitations) that might otherwise constitute a defense available to, or a
discharge of, either of the Borrowers or a Subsidiary Guarantor or any other
guarantor or surety.
This Guaranty shall continue to be effective or to be reinstated, as the case
may be, if at any time any payment of any of the Guaranteed Obligations is
rescinded or must otherwise be returned by the Administrative Agent or any of
the other Lender Parties upon the insolvency, bankruptcy or reorganization of
either of the Borrowers or any other Loan Party or otherwise, all as though
such payment had not been made.
SECTION 3. Waivers. (a) Each of the Subsidiary Guarantors hereby waives
promptness, diligence, notice of acceptance and any other notice with respect
to any of the Guaranteed Obligations and this Guaranty and any requirement that
the Administrative Agent or any other Lender Party protect, secure, perfect or
insure any Lien or any property subject thereto or exhaust any right or take
any action against either of the Borrowers or any other Person or any
collateral.
(b) Each of the Subsidiary Guarantors hereby irrevocably waives all right
to trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to any of the Loan
Documents or any of the transactions contemplated thereby, or the actions of
the Administrative Agent or any other Lender Party in the negotiation,
administration, performance or enforcement thereof.
(c) Each of the Subsidiary Guarantors hereby irrevocably waives any duty
on the part of the Administrative Agent or any other Lender Party to disclose
to such Subsidiary Guarantor any matter, fact or thing relating to the
business, operation or condition of either of the Borrowers and their
respective assets now or hereafter known by the Administrative Agent or any
other Lender Party.
(d) Each of the Subsidiary Guarantors hereby irrevocably waives any claim
or other rights that it may now or hereafter acquire against either of the
Borrowers or any other insider guarantor that arise from the existence,
payment, performance or enforcement of each
<PAGE> 135
5
Subsidiary Guarantor's Obligations under this Guaranty or any other Loan
Document, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification and any right to
participate in any claim or remedy of the Administrative Agent or any other
Lender Party against either of the Borrowers or any other insider guarantor or
any collateral, whether or not such claim, remedy or right arises in equity or
under contract, statute or common law, including, without limitation, the right
to take or receive from either of the Borrowers or any other insider guarantor,
directly or indirectly, in cash or other property or by setoff or in any other
manner, payment or security on account of such claim, remedy or right. If any
amount shall be paid to any Subsidiary Guarantor in violation of the preceding
sentence at any time prior to the later of (i) the payment in full in cash of
the Guaranteed Obligations and all other amounts payable under this Guaranty
and (ii) the Termination Date, such amount shall be held in trust for the
benefit of the Administrative Agent and the other Lender Parties and shall
forthwith be paid to the Administrative Agent to be credited and applied to the
Guaranteed Obligations and all other amounts payable under this Guaranty,
whether matured or unmatured, in accordance with the terms of the Loan
Documents, or to be held as collateral for any Guaranteed Obligations or other
amounts payable under this Guaranty thereafter arising. Each of the Subsidiary
Guarantors acknowledges that it will receive direct and indirect benefits from
the financing arrangements contemplated by the Loan Documents and that the
waiver set forth in this subsection (d) is knowingly made in contemplation of
such benefits.
SECTION 4. Payments Free and Clear of Taxes, Etc. (a) Any and all payments
made by any Subsidiary Guarantor hereunder shall be made, in accordance with
Section 2.11 of the Fourth Amended and Restated Credit Agreement, free and
clear of and without deduction for any and all present or future Taxes. If such
Subsidiary Guarantor shall be required by law to deduct any Taxes from or in
respect of any sum payable hereunder to the Administrative Agent or any other
Lender Party, (i) the sum payable shall be increased as may be necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section 4), the Administrative Agent or such
other Lender Party, as the case may be, receives an amount equal to the sum it
would have received had no such deductions been made, (ii) such Subsidiary
Guarantor shall make such deductions and (iii) such Subsidiary Guarantor shall
pay the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable law.
(b) In addition, each of the Subsidiary Guarantors agree to pay any
present or future Other Taxes.
(c) The Subsidiary Guarantors jointly and severally agree to indemnify the
Administrative Agent and each other Lender Party for the full amount of Taxes
or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed
by any jurisdiction on amounts payable under this Section 4) paid by the
Administrative Agent or such other Lender Party, as the case may be, and any
liability (including penalties, additions to tax,
<PAGE> 136
6
interest and expenses) arising therefrom or with respect thereto. This
indemnification shall be made within 30 days from the date the Administrative
Agent or such other Lender Party, as the case may be, makes written demand
therefor.
(d) Within 30 days after the date of any payment of Taxes, each of the
Subsidiary Guarantors will furnish to the Administrative Agent, at its address
referred to in Section 8.02 of the Fourth Amended and Restated Credit
Agreement, appropriate evidence of payment thereof. If no Taxes are payable in
respect of any payment hereunder by or on behalf of such Subsidiary Guarantor
through an account or branch outside the United States or on behalf of such
Subsidiary Guarantor by a payor that is not a United States person (as defined
in Section 2.11(d) of the Fourth Amended and Restated Credit Agreement), such
Subsidiary Guarantor will furnish, or will cause such payor to furnish, to the
Administrative Agent a certificate from each appropriate taxing authority or
authorities, or an opinion of counsel acceptable to the Administrative Agent,
in either case stating that such payment is exempt from or not subject to
Taxes.
(e) Without prejudice to the survival of any other agreement of any
Subsidiary Guarantor hereunder, the agreements and obligations of such
Subsidiary Guarantor contained in this Section 4 shall survive the payment in
full of the Guaranteed Obligations and all other amounts payable under this
Guaranty.
SECTION 5. Representations and Warranties. Each Guarantor hereby
represents and warrants as follows:
(a) Such Guarantor other than GND (i) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation, (ii) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which it owns or leases property
or in which the conduct of its business requires it to so qualify or be
licensed except where the failure to so qualify or be licensed would not
have a Material Adverse Effect and (iii) has all requisite corporate power
and authority to own or lease and operate its properties and to carry on its
business as now conducted and as proposed to be conducted. All of the
outstanding capital stock of such Guarantor has been validly issued and is
fully paid and non-assessable. GND (i) is a business trust duly organized,
validly existing under the laws of the Commonwealth of Pennsylvania, (ii) is
duly qualified as a foreign business trust in each other jurisdiction in
which it owns or leases property or in which the conduct of its business
requires it to so qualify or be licensed, except where the failure to so
qualify or be licensed would not have a Material Adverse Effect and (iii)
has all requisite power and authority to own or lease and operate its
properties and to carry on its business as now conducted and as proposed to
be conducted. The instrument organizing GND
<PAGE> 137
7
as a business trust has been filed in the Department of State of the
Commonwealth of Pennsylvania and the sole beneficiaries of GND are GNS and
GNIC.
(b) The execution, delivery and performance by such Guarantor of this
Guaranty and each other Loan Document and each Related Document to which it
is or is to be a party, and the consummation of the transactions
contemplated hereby, are within such Guarantor's corporate powers, have been
duly authorized by all necessary corporate action, and do not (i) contravene
such Guarantor's charter or bylaws, (ii) violate any law (including, without
limitation, the Securities Exchange Act and the Racketeer Influenced and
Corrupt Organizations Chapter of the Organized Crime Control Act of 1970),
rule, regulation (including, without limitation, Regulation G, T, U and X of
the Board of Governors of the Federal Reserve System), order, writ,
judgment, injunction, decree, determination or award, (iii) conflict with or
result in the breach of, or constitute a default under, any contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument
binding on or affecting such Guarantor, any of its Subsidiaries or any of
their properties or (iv) result in or require the creation or imposition of
any Lien upon or with respect to any of the properties of such Guarantor or
any of its Subsidiaries. The execution, delivery and performance by GND of
each Loan Document and each Related Document to which it is or is to be a
party, and the consummation of the transactions contemplated hereby, are
within the powers of GND, have been duly authorized by all necessary action
by and consent of its trustees, and do not (i) contravene GND's
organizational documents or bylaws, (ii) violate any law (including, without
limitation, the Securities Exchange Act and the Racketeer Influenced and
Corrupt Organizations Chapter of the Organized Crime Control Act of 1970),
rule, regulation (including, without limitation, Regulations G, T, U and X
of the Board of Governors of the Federal Reserve System), order, writ,
judgement, injunction, decree, determination or award, (iii) conflict with
or result in the breach of, or constitute a default under, any contract,
loan agreement, indenture, mortgage, deed of trust, lease or other
instrument binding on or affecting GND, any of its Subsidiaries or any of
its properties or (iv) result in or require the creation or imposition of
any Lien upon or with respect to any of the properties of GND or any of its
Subsidiaries. Neither such Guarantor nor any of its Subsidiaries is in
violation of any such law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award or in breach of any such
contract, loan agreement, indenture, mortgage, deed of trust, lease or other
instrument, the violation or breach of which would have a Material Adverse
Effect.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or any other
third party is required for (i) the due execution, delivery, recordation,
filing or performance by such Guarantor of this Guaranty, the Notes or any
other Loan Document or any
<PAGE> 138
8
Related Document to which it is or is to be a party, or for the consummation
of the transactions contemplated hereby, or (ii) the exercise by the Agent
or any Lender Party of its rights under the Loan Documents.
(d) This Guaranty has been, and each other Loan Document and each Related
Document to which such Guarantor will be a party when delivered pursuant to
the Credit Agreement will have been, duly executed and delivered by such
Guarantor. This Guaranty is, and each of the Notes, and each other Loan
Document and each Related Document to which it will be a party when
delivered pursuant to the Credit Agreement will be, the legal, valid and
binding obligation of such Guarantor, enforceable against such Guarantor in
accordance with its terms.
(e) There is no action, suit, investigation, litigation or proceeding
affecting such Guarantor, any of its Subsidiaries or any of its properties,
including any Environmental Action, pending or, to the best of the
Guarantor's knowledge, threatened before any court, governmental agency or
arbitrator that (i) would be reasonably likely to have a Material Adverse
Effect or (ii) purports to affect the legality, validity or enforceability
of this Guaranty, any Note, any other Loan Document or any Related Document
or the consummation of the transactions contemplated by the Loan Documents.
(f) There are no conditions precedent to the effectiveness of this
Guaranty that have not been satisfied or waived.
(g) Such Guarantor has, independently and without reliance upon the Agent
or any other Secured Party and based on such documents and information as it
has deemed appropriate, made its own credit analysis and decision to enter
into this Guaranty, and such Guarantor has established adequate means of
obtaining from any other Loan Parties on a continuing basis information
pertaining to, and is now and on a continuing basis will be completely
familiar with, the financial condition, operations, properties and prospects
of such other Loan Parties.
SECTION 6. Covenants. Each Guarantor covenants and agrees that, so long as
any part of the Guaranteed Obligations shall remain unpaid, any Letter of
Credit shall be outstanding, or any Lender Party shall have any Commitment or
any obligation under any Hedge Agreements, such Guarantor will, unless the
Required Lenders shall otherwise consent in writing, perform or observe, and
cause its Subsidiaries to perform or observe, all of the terms, covenants and
agreements that the Loan Documents state that the Borrowers are to cause such
Guarantor or such Subsidiaries to perform or observe.
SECTION 7. Amendments, Etc. No amendment or waiver of any provision of
this Guaranty and no consent to any departure by any Subsidiary Guarantor
therefrom
<PAGE> 139
9
shall in any event be effective unless the same shall be in writing and signed
by the Administrative Agent and the Required Lenders, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no amendment, waiver or
consent shall, unless in writing and signed by all the Lenders, (a) limit the
liability of any Subsidiary Guarantor hereunder or (b) change the percentage of
the Commitments or of the aggregate unpaid principal amount of the Notes, or
the number of Lenders, that shall be required for the Lenders or any of them to
take any action hereunder.
SECTION 8. Notices, Etc. All notices and other communications provided for
hereunder shall be in writing (including telegraphic, telecopy, telex or cable
communication) and mailed, telegraphed, telecopied, telexed, cabled or
delivered (a) if to any Subsidiary Guarantor, addressed to it at 921 Penn
Avenue, Pittsburgh, Pennsylvania 15222, Attention: Chief Financial Officer,
with a copy to Hutchins, Wheeler & Dittmar, A Professional Corporation, at 101
Federal Street, Boston, MA 02110, Attention: Jeffrey S. Wieand or (b) if to the
Administrative Agent or any Lender, at the address of the Administrative Agent
or such Lender referred to in Section 8.02 of the Fourth Amended and Restated
Credit Agreement, or as to any such party at such other address as shall be
designated by such party in a written notice to each other party complying as
to delivery with the terms of this Section 6. All such notices and other
communications shall, when mailed, telegraphed, telecopied, telexed or cabled,
respectively, be effective when deposited in the mails, telecopied, delivered
to the telegraph company, transmitted by telecopier, confirmed by telex
answerback or delivered to the cable company, respectively.
SECTION 9. No Waiver; Remedies. No failure on the part of the
Administrative Agent or any other Lender Party to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof or consent
thereto; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The remedies herein provided
are cumulative and not exclusive of any remedies provided by law.
SECTION 10. Right of Setoff. Upon (a) the occurrence and during the
continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Section 6.01 of the Fourth Amended and
Restated Credit Agreement to authorize the Administrative Agent to declare the
Notes due and payable pursuant to the provisions of said Section 6.01, each
Lender is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender to or for the credit or the
account of any of the Subsidiary Guarantors against any and all of the
Obligations of such Subsidiary Guarantor now or hereafter existing under this
Guaranty, whether or not such Lender shall have made any demand under this
Guaranty and although such Obligations may be unmatured. Each
<PAGE> 140
10
Lender agrees promptly to notify each such Subsidiary Guarantor after any such
setoff and application made by such Lender; provided, however, that the failure
to give such notice shall not affect the validity of such setoff and
application. The rights of each Lender under this Section 8 are in addition to
other rights and remedies (including, without limitation, other rights of
setoff) that such Lender may have.
SECTION 11. Continuing Guaranty; Assignments Under the Fourth Amended and
Restated Credit Agreement. This Guaranty is a continuing guaranty and shall (a)
remain in full force and effect until the later of (i) the payment in full in
cash of the Guaranteed Obligations and all other amounts payable under this
Guaranty and (ii) the Termination Date, (b) be binding upon each Subsidiary
Guarantor, its successors and assigns and (c) inure to the benefit of and be
enforceable by the Administrative Agent, the other Lender Parties and their
respective successors, transferees and assigns. Without limiting the generality
of the foregoing clause (c), any Lender may assign or otherwise transfer all or
any portion of its rights and obligations under the Fourth Amended and Restated
Credit Agreement (including, without limitation, all or any portion of its
Commitment or Commitments, the Advances owing to it and the Note or Notes held
by it) to any other Person, and such other Person shall thereupon become vested
with all the benefits in respect thereof granted to such Lender, herein or
otherwise, in each case as provided in Section 8.07 of the Fourth Amended and
Restated Credit Agreement.
SECTION 12. Governing Law. This Guaranty shall be governed by, and
construed in accordance with, the laws of the State of New York.
SECTION 13. Execution in Counterparts. This Guaranty may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Guaranty by
telecopier shall be effective as delivery of a manually executed counterpart of
this Guaranty.
<PAGE> 141
IN WITNESS WHEREOF, each of the Subsidiary Guarantors has caused this
Guaranty to be duly executed and delivered by its officer thereunto duly
authorized as of the date first above written.
GENERAL NUTRITION CORPORATION
By /s/
--------------------------
Title: President
By /s/
--------------------------
Title: Treasurer
GENERAL NUTRITION PRODUCTS, INC.
By /s/
--------------------------
Title:
NATURE'S FRESH NORTHWEST, INC.
By /s/
--------------------------
Title:
GENERAL NUTRITION GOVERNMENT SERVICES, INC.
By /s/
--------------------------
Title:
<PAGE> 142
GNC (CANADA) HOLDING COMPANY
By /s/
--------------------------
Title:
GENERAL NUTRITION INVESTMENT COMPANY
By /s/
--------------------------
Title:
GENERAL NUTRITION SERVICES, INC.
By /s/
--------------------------
Title:
GNC FRANCHISING, INC.
By /s/
--------------------------
Title:
GNC LIMITED
By /s/
--------------------------
Title:
GENERAL NUTRITION INTERNATIONAL, INC.
By /s/
--------------------------
Title:
<PAGE> 143
GENERAL NUTRITION DISTRIBUTION COMPANY
By /s/
--------------------------
Title: Treasurer
GNC (UK) HOLDING COMPANY
By /s/
--------------------------
Title:
NATURE FOOD CENTRES, INC.
By /s/
--------------------------
Title:
NFC, INC.
By /s/
--------------------------
Title:
VSS, INC.
By /s/
--------------------------
Title:
GNC INTERNATIONAL HOLDINGS, INC.
By /s/
--------------------------
Title:
<PAGE> 144
1
EXECUTION COPY
EXHIBIT F
ASSIGNMENT AGREEMENT
Reference is made to the Third Amended and Restated Credit Agreement dated
as of March 21, 1996 (as amended prior to the date hereof, the "Credit
Agreement") among GENERAL NUTRITION, INCORPORATED, a Pennsylvania corporation
("GNI"), GENERAL NUTRITION CORPORATION, a Pennsylvania corporation ("GNC"), the
banks and other lenders listed on the signature pages thereof, BANQUE NATIONALE
DE PARIS, NEW YORK BRANCH, as agent for the Lenders hereunder, PNC BANK,
NATIONAL ASSOCIATION, FLEET NATIONAL BANK and THE FUJI BANK, LIMITED, as
co-agents and BANQUE NATIONALE DE PARIS, NEW YORK BRANCH, as swing line bank.
Terms not otherwise defined herein are used herein as defined in the Credit
Agreement.
1. Each of the lenders listed on the signature pages hereof under the
caption "Assignors" (each an "Assignor" and, collectively, the "Assignors")
hereby sells and assigns to the Lenders (each an "Assignee" and, collectively,
the "Assignees") party to the Fourth Amended and Restated Credit Agreement
dated as of March 31, 1997 (the "Restated Credit Agreement") among GENERAL
NUTRITION, INCORPORATED, a Pennsylvania corporation ("GNI"), GENERAL NUTRITION
CORPORATION, a Pennsylvania corporation ("GNC" together with GNI, the
"Borrowers"), GENERAL NUTRITION COMPANIES, INC., a Delaware corporation, the
banks and other lenders (the "Lenders") listed on the signature pages hereof,
BANQUE NATIONALE DE PARIS ("BNP"), as administrative agent (together with any
successor appointed pursuant to Article VII, the "Administrative Agent") and as
documentation agent (the "Documentation Agent"), for the Lenders hereunder, PNC
BANK, NATIONAL ASSOCIATION and ABN AMRO Bank N.V. as syndication agents (the
"Syndication Agents"), THE SUMITOMO BANK, LIMITED, FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, THE FUJI BANK, LIMITED, NEW YORK BRANCH, FLEET NATIONAL BANK
and UNITED STATES NATIONAL BANK OF OREGON, as co-agents (the "Co-Agents," and,
together with the Administrative Agent, the Documentation Agent and the
Syndication Agents, the "Agents"), and BNP, as issuing bank ("Issuing Bank")
and as swing line bank (the "Swing Line Bank"), all of such Assignor's interest
in and rights and obligations under the Credit Agreement as of the Effective
Date (as defined below), including, without limitation, such Assignor's
Revolving Credit Commitments as in effect on the Effective Date
<PAGE> 145
2
(each an "Assignment" and, collectively, the "Assignments"). The Administrative
Agent, on behalf of each Assignee, accepts the Assignments in accordance with
the terms set forth in the Restated Credit Agreement.
2. This Assignment Agreement shall become effective as of the date (the
"Effective Date") and time specified in a notice delivered by the Borrowers to
the Administrative Agent in accordance with the Restated Credit Agreement no
later than the day prior to the proposed Effective Date; the Administrative
Agent shall give each Assignor prompt notice of the delivery of such notice by
the Borrowers. No such notice shall specify an Effective Date later than March
31, 1997. In consideration of the Assignments contemplated hereby, each
Assignor shall receive an amount (each, an "Assignment Payment" and,
collectively, the "Assignment Payments") in same day funds equal to the sum of
the aggregate principal amount of all Advances owing to such Assignor on such
date, plus accrued and unpaid commitment fees and interest thereon to such date
at the rates specified pursuant to the Credit Agreement, such payment to be
made as soon as practicable following the initial borrowing under the Restated
Credit Agreement (the "Effective Time"), but in no event later than 12:00 noon
on the day immediately following the Effective Time (the "Payment Deadline").
Each Assignee shall pay an amount equal to its ratable share, determined as set
forth in the Restated Credit Agreement, of the aggregate of the Assignment
Payments. If the aggregate amount of the Assignment Payments has not been
delivered to the Administrative Agent on or prior to the Payment Deadline or if
the Fourth Restatement Date (as defined in the Restated Credit Agreement) does
not occur, then (i) each Assignment shall automatically be revoked without
further action by any party and each Assignor shall have the same interest in
and rights and obligations under the Credit Agreement as existed immediately
prior to the Effective Date, (ii) each Assignor shall return to the
Administrative Agent all Assignment Payments received by such Assignor, and the
Administrative Agent shall return all such payments, together with all other
Assignment Payments received by the Administrative Agent and not paid to the
Assignors, to the Assignees and (iii) this Assignment Agreement shall be of no
further force and effect and each of the parties hereto shall be released from
its obligations and forfeit its rights hereunder (except under this sentence).
In the event that any Assignor's Assignment Payment is not made by 12:00 noon
on the Effective Date, such Assignor shall receive an additional day's interest
and commitment fee for each day until the day on which such payment is made
prior to 2:00 p.m., unless this Assignment Agreement shall have been revoked in
accordance with the preceding sentence.
3. Each Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interests being sold and assigned by it hereunder and
that such interests are free and clear of any adverse claim; (ii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Credit Agreement or the Restated Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or the Restated Credit Agreement or any other instrument or document
furnished
<PAGE> 146
3
pursuant thereto; and (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrowers or the
performance or observance by the Borrowers of any of their respective
obligations under the Credit Agreement or the Restated Credit Agreement or any
other instrument or document furnished pursuant thereto.
4. By accepting this Assignment Agreement below, the Administrative Agent
confirms on behalf of each Assignee that such Assignee has received such
financial statements and such other documents and information as such Assignee
has deemed appropriate to make its own credit analysis and decision to enter
into the Restated Credit Agreement and agrees that such Assignee will,
independently and without reliance upon any Assignor and based on such
documents and information as such Assignee shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Restated Credit Agreement.
5. The Borrowers hereby acknowledge that this Assignment Agreement varies
from the form of Assignment and Acceptance prescribed by the Credit Agreement
and waives any objection to such variations. Subject to the payment of all
amounts specified under paragraph 2 above, each Assignor waives any and all
rights to assert that the borrowings and other transactions contemplated by the
Restated Credit Agreement constitute a Default under the Credit Agreement.
6. The Borrowers hereby acknowledge that the Assignors, by performance of
this Assignment Agreement, may incur costs associated with a repayment on a day
other than the last day of an Interest Period. The Borrower hereby agrees to
pay directly to each Assignor, on demand, an amount equal to such costs in
accordance with Section 8.04(c) of the Credit Agreement.
7. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
8. This Assignment Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement. Delivery of an executed
counterpart of this Assignment Agreement by telecopier shall be effective as
delivery of a manually executed counterpart of this Assignment Agreement.
<PAGE> 147
IN WITNESS WHEREOF, the Assignors, GNI and GNC have caused this Assignment
Agreement to be executed by their officers thereunto duly authorized.
GENERAL NUTRITION, INCORPORATED,
as Borrower
By
Title:
GENERAL NUTRITION CORPORATION,
as Borrower
By
Title:
By
Title:
BANQUE NATIONALE DE PARIS,
as Administrative Agent
By
Title:
By
Title:
Assignors: BANQUE NATIONALE DE PARIS
By
Title:
By
Title:
<PAGE> 148
ABN AMRO BANK N.V.
By
Title:
By
Title:
COMMERZBANK, AG NEW YORK BRANCH
By
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By
Title:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By
Title:
FUYO GENERAL LEASE (USA) INC.
By
Title:
<PAGE> 149
THE BANK OF NEW YORK
By
Title:
THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY
By
Title:
THE SANWA BANK, LIMITED, NEW YORK BRANCH
By
Title:
THE TOYO TRUST AND BANKING CO. LTD.
By
Title:
TOKAI BANK, LIMITED NEW YORK BRANCH
By
Title:
<PAGE> 150
FLEET NATIONAL BANK
By
Title:
MELLON BANK, N.A.
By
Title:
MITSUBISHI TRUST & BANKING CORPORATION (U.S.A.)
By
Title:
NATIONAL CITY BANK OF PENNSYLVANIA
By
Title:
PNC BANK, NATIONAL ASSOCIATION
By
Title:
KEYBANK NATIONAL ASSOCIATION
By
Title:
<PAGE> 151
THE SUMITOMO TRUST & BANKING CO., LTD., NEW YORK
BRANCH
By
Title:
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By
Title:
THE DAI-ICHI KANGYO BANK, LTD.
By
Title:
THE FUJI BANK, LIMITED, NEW YORK BRANCH
By
Title:
THE SUMITOMO BANK, LIMITED
By
Title:
By
Title:
<PAGE> 152
THE YASUDA TRUST AND BANKING CO., LTD., NEW YORK
BRANCH
By
Title:
UNITED STATES NATIONAL BANK OF OREGON
By
Title:
WELLS FARGO BANK, N.A.
By
Title:
Assignees:
ABN AMRO BANK N.V.
By
Title:
By
Title:
BANQUE NATIONALE DE PARIS
By
Title:
By
Title:
<PAGE> 153
PNC BANK, NATIONAL ASSOCIATION
By
Title:
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By
Title:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By
Title:
FLEET NATIONAL BANK
By
Title:
<PAGE> 154
KEYBANK NATIONAL ASSOCIATION
By
Title:
MELLON BANK, N.A.
By
Title:
MITSUBISHI TRUST & BANKING CORPORATION (U.S.A.)
By
Title:
NATIONAL CITY BANK OF PENNSYLVANIA
By
Title:
THE BANK OF NEW YORK
By
Title:
<PAGE> 155
THE DAI-ICHI KANGYO BANK, LTD.
By
Title:
THE FUJI BANK, LIMITED, NEW YORK BRANCH
By
Title:
THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY
By
Title:
THE SANWA BANK, LIMITED, NEW YORK BRANCH
By
Title:
THE SUMITOMO BANK, LIMITED
By
Title:
By
Title:
<PAGE> 156
THE SUMITOMO TRUST & BANKING CO., LTD., NEW YORK
BRANCH
By
Title:
THE TOYO TRUST AND BANKING CO. LTD.
By
Title:
THE YASUDA TRUST AND BANKING CO., LTD., NEW YORK
BRANCH
By
Title:
UNITED STATES NATIONAL BANK OF OREGON
By
Title:
WELLS FARGO BANK, N.A.
By
Title:
<PAGE> 157
BANQUE PARIBAS
By
Title:
CIBC INC.
By
Title:
NATIONAL AUSTRALIA BANK LIMITED
By
Title:
WACHOVIA BANK OF GEORGIA, N.A.
By
Title:
<PAGE> 158
EXHIBIT G TO
THE FOURTH AMENDED
AND RESTATED
CREDIT AGREEMENT
AS SEPARATELY EXECUTED
INTERCOMPANY SUBORDINATION AGREEMENT
Dated as of March 31, 1997
among
GENERAL NUTRITION COMPANIES, INC.
as Subordinated Creditor,
and
GENERAL NUTRITION, INCORPORATED,
as Borrower,
in favor of
BANQUE NATIONALE DE PARIS,
as Administrative Agent
<PAGE> 159
EXECUTION COPY
INTERCOMPANY SUBORDINATION AGREEMENT
Dated as of March 31, 1997
among
GENERAL NUTRITION COMPANIES, INC.
as Subordinated Creditor,
and
GENERAL NUTRITION, INCORPORATED,
as Borrower,
in favor of
BANQUE NATIONALE DE PARIS,
as Administrative Agent
<PAGE> 160
1
INTERCOMPANY SUBORDINATION AGREEMENT
SUBORDINATION AGREEMENT dated March 31, 1997, made by General Nutrition
Companies, Inc., a Delaware corporation (the "Subordinated Creditor") and
General Nutrition, Incorporated, a Pennsylvania corporation (the "Borrower"),
in favor of Banque Nationale de Paris ("BNP"), as administrative agent
(together with any successor agent appointed pursuant to Article VII of the
Fourth Amended and Restated Credit Agreement referred to below, the
"Administrative Agent") for the Lenders under the Credit Agreements referred to
below.
PRELIMINARY STATEMENTS
(1) The Lenders have entered into (a) a Fourth Amended and Restated Credit
Agreement dated as of March 31, 1997 with the Borrower and BNP, as
administrative agent and as documentation agent, PNC Bank, National Association
and ABN AMRO Bank N.V., as syndication agents (the "Syndication Agents"), The
Sumitomo Bank, Limited, First Union National Bank of North Carolina, The Fuji
Bank, Limited, New York Branch, Fleet National Bank and United States National
Bank of Oregon, as co-agents (the "Co-Agents," and, together with the
Administrative Agent, the Documentation Agent and the Syndication Agents, the
"Agents"), and BNP, as swing line bank (the "Swing Line Bank") and Issuing Bank
(the "Issuing Bank") (said Agreement, as it may hereafter be amended, restated,
supplemented or otherwise modified from time to time, and any agreement
extending the maturity of, refinancing or otherwise restructuring all or any
portion of the Obligations thereunder being the "Credit Agreement", the terms
defined therein and not otherwise defined herein being used herein as therein
defined), and (b) the other Loan Documents and each Hedge Agreement entered
into with the Loan Parties party thereto.
(2) The Borrower is, and may hereafter from time to time become, indebted
or otherwise obligated to the Subordinated Creditor. All Indebtedness and other
Obligations of the Borrower to the Subordinated Creditor now or hereafter
existing (whether created directly or acquired by assignment or otherwise), and
interest and premiums, if any, thereon and other amounts payable in respect
thereof or in connection therewith are hereinafter referred to as the
"Subordinated Debt".
(3) It is a condition precedent to the incurrence of the Subordinated Debt
that the Subordinated Creditor shall have executed and delivered this
Agreement.
NOW, THEREFORE, the Subordinated Creditor and the Borrower each hereby
agrees as follows:
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2
SECTION 1. Agreement to Subordinate. The Subordinated Creditor and the
Borrower each agrees that all of the Subordinated Debt is and shall be
subordinate and junior, to the extent and in the manner hereinafter set forth,
to the prior payment in full of all Senior Obligations (as hereinafter
defined), whether now or hereafter existing. For the purposes of this
Agreement, the Senior Obligations shall not be deemed to have been paid in full
until the latest of (a) the payment in full in cash of all of the Senior
Obligations and the termination or expiration of all of the commitments of the
Senior Creditors and other holders thereof and (b) the expiration or
termination of all of the Hedge Agreements (such latest date being hereinafter
referred to as the "Subordination Termination Date"). Furthermore, for purposes
of this Agreement (A) the term "Senior Obligations" means all Indebtedness and
other Obligations of the Borrower under or in respect of (1) the Credit
Agreement, the Notes, the other Loan Documents, and each Hedge Agreement, in
each case whether for principal, interest (including, without limitation,
interest, as provided in the Notes, that accrues after the filing of a petition
initiating any action or proceeding under the U.S. Bankruptcy Code or any other
bankruptcy, insolvency or similar law or statute protecting creditors in effect
in any jurisdiction, whether or not such interest accrues after the filing of
such petition for purposes of the U.S. Bankruptcy Code or such other law or
statute or is an allowed claim in any such action or proceeding), fees,
premiums, indemnifications, liabilities, expenses or otherwise, and in each
case as amended, supplemented, modified, extended, restated, renewed, refunded
or replaced, in whole or in part, from time to time, and without limitation as
to amount, terms, conditions, covenants and other provisions, and (2) any
instrument or other agreement governing any Indebtedness or other Obligations
incurred to refinance, refund or replace, in whole or in part, any of the
Indebtedness or other Obligations referred to in subclause (1) of this
sentence, together with any related notes, guarantees, collateral documents,
instruments and agreements executed from time to time in connection therewith
and (B) the term "Senior Creditors" means, collectively, the Agents, the
Lenders, the Swing Line Bank, the Issuing Bank and any Lender that has entered
into a Hedge Agreement with any Loan Party.
SECTION 2. Events of Subordination. (a) In the event of any dissolution,
winding up, liquidation, arrangement, reorganization, adjustment, protection,
relief or composition of the Borrower or of its debts, whether voluntary or
involuntary, in any bankruptcy, insolvency, arrangement, reorganization,
receivership, liquidation, winding up, dissolution, relief or other similar
action or proceeding under any bankruptcy, insolvency or similar law or statute
protecting creditors in effect in any jurisdiction, or upon an assignment for
the benefit of creditors or any other marshalling of the assets and liabilities
of the Borrower, or any other similar action or proceeding (each, an
"Insolvency Event"), the Senior Creditors shall be entitled to receive payment
in full of the Senior Obligations owed to them before the Subordinated Creditor
shall be entitled to receive any payment of all or any of the Subordinated
Debt, and any payment or distribution of any kind (whether in cash, property or
securities) that otherwise would be payable or deliverable upon or with respect
to the Subordinated Debt in any such Insolvency Event (including any payment
that may be
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3
payable by reason of any other indebtedness of the Borrower being subordinated
to payment of the Subordinated Debt) shall be paid or delivered directly to the
Administrative Agent for the account of the Senior Creditors until the Senior
Obligations shall have been paid in full.
(b) In the event that (i) any Default shall have occurred and be
continuing or (ii) any judicial proceeding shall be pending with respect to any
such Default, then no payment (including any payment that may be payable by
reason of any other indebtedness of the Borrower being subordinated to payment
of the Subordinated Debt) shall be made by or on behalf of the Borrower for or
on account of any Subordinated Debt, and the Subordinated Creditors shall not
take or receive from the Borrower, directly or indirectly, in cash or other
property or by set-off or in any other manner, including, without limitation,
from or by way of collateral, payment of all or any of the Subordinated Debt.
(c) In the event that any Subordinated Debt is declared due and payable
before its stated maturity, the Senior Creditors shall be entitled to receive
payment in full of all amounts due or to become due on or in respect of all
Senior Obligations before the Subordinated Creditor is entitled to receive any
payment (including any payment which may be payable by reason of the payment of
any other indebtedness of the Borrower being subordinated to the payment of the
Subordinated Debt) by the Borrower on account of the Subordinated Debt. As long
as there is no Default and except as otherwise provided in this Agreement, the
Subordinated Creditor shall be entitled to receive and keep payments in respect
of the Subordinated Debt.
SECTION 3. In Furtherance of Subordination. The Subordinated Creditor
agrees, in furtherance of the rights of the Senior Creditors set forth in
Section 2, that:
(a) If any Insolvency Event is commenced by or against the Borrower:
(i) the Administrative Agent is hereby irrevocably authorized and
empowered (in its own name or in the name of the Subordinated Creditor or
otherwise), but shall have no obligation, to demand, sue for, collect and
receive every payment or distribution otherwise payable to the
Subordinated Creditor on account of the Subordinated Debt following an
Insolvency Event and give acquittance therefor, and to file claims and
proofs of claim and take such other action (including, without limitation,
voting the Subordinated Debt or enforcing any security interest or other
lien securing payment of the Subordinated Debt) as it may deem necessary
or advisable for the exercise or enforcement of any of the rights or
interests of any of the Senior Creditors under this Agreement; and
(ii) the Subordinated Creditor shall duly and promptly take such
action as the Administrative Agent may from time to time reasonably
request
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4
(A) to collect the Subordinated Debt for the account of the Senior
Creditors and to file appropriate claims or proofs or claim in respect of
the Subordinated Debt, (B) to execute and deliver to the Administrative
Agent such powers of attorney, assignments, or other instruments as the
Administrative Agent may reasonably request in order to enable the
Administrative Agent to enforce any and all claims with respect to, and
any security interests and other liens securing payment of, the
Subordinated Debt and (C) to collect and receive any and all payments or
distributions which may be payable or deliverable upon or with respect to
the Subordinated Debt.
(b) All payments or distributions upon or with respect to the Subordinated
Debt which are received by the Subordinated Creditor contrary to the provisions
of this Agreement shall be received in trust for the benefit of the Senior
Creditors, shall be segregated from other funds and property of the
Subordinated Creditor and shall be forthwith paid over to the Administrative
Agent in the same form as so received (with any necessary indorsement) for the
account of the Senior Creditors (or the successors thereto) for application (in
the case of cash) to, or as collateral (in the case of noncash property or
securities) for, the payment or prepayment of the Senior Obligations owed to
the applicable Senior Creditors until such Senior Obligations shall have been
paid in full.
(c) To the extent that any of the Subordinated Creditor, the Borrower or
any of its Subsidiaries or any other guarantor of or provider of collateral for
the Senior Obligations makes any payment on the Senior Obligations that is
subsequently invalidated, declared to be fraudulent or preferential or set
aside or is required to be repaid to a trustee, receiver or any other party
under any bankruptcy, insolvency or reorganization act, state or federal law,
common law or equitable cause (such payment being hereinafter referred to as a
"Voided Payment"), then to the extent of such Voided Payment, that portion of
the Senior Obligations that had been previously satisfied by such Voided
Payment shall be revived and continue in full force and effect as if such
Voided Payment had never been made. To the extent that the Subordinated
Creditor shall have received any payments subsequent to the date of the Senior
Creditors' initial receipt of such Voided Payment and such payments have not
been invalidated, declared to be fraudulent or preferential or set aside or are
required to be repaid to a trustee, receiver, or any other party under any
bankruptcy act, state or federal law, common law or equitable cause, the
Subordinated Creditor shall be obligated and hereby agrees that any such
payment so made or received shall be deemed to have been received in trust for
the benefit of the Senior Creditors, and the Subordinated Creditor hereby
agrees to pay to the Administrative Agent, upon demand, the full amount so
received by the Subordinated Creditor during such period of time to the extent
necessary fully to restore to the Senior Creditors the amount of such Voided
Payment to be applied as set forth in Section 3(b).
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5
(d) The Administrative Agent is hereby authorized to demand specific
performance of this Agreement, whether or not the Borrower shall have complied
with any of the provisions hereof applicable to it, at any time when the
Subordinated Creditor shall have failed to comply with any of the provisions of
this Agreement applicable to it. The Subordinated Creditor hereby irrevocably
waives any defense based on the adequacy of a remedy at law which might be
asserted as a bar to the remedy of specific performance set forth in this
Section 3(d).
(e) The Subordinated Creditor shall not have or claim any Lien in or on
any property or assets of the Borrower, whether now or hereafter existing,
except in furtherance of the execution or levy upon any judgment which the
Subordinated Creditor is permitted to obtain hereunder and, in all such cases,
subject to the provisions of this Agreement.
(f) The Subordinated Creditor hereby agrees, with respect to the Senior
Obligations and any and all of the collateral therefor, that the Borrower and
the Senior Creditors may agree to amend, waive, supplement or otherwise modify
the terms or conditions of any of the Senior Obligations, and the Senior
Creditors (or any portion of them) may grant extensions of the time of payment
or performance of and make compromises in respect of, any or all of the Senior
Obligations (including, without limitation, releases of collateral of, and
settlements with, the Borrower, any of the other Loan Parties or any of the
other guarantors, sureties or providers of collateral security for the Senior
Obligations) and the agreements, instruments and other documents related
thereto, in each case without the consent of the Subordinated Creditor and
without affecting any of the agreements or obligations of the Subordinated
Creditor or the Borrower contained in this Agreement. Without the necessity of
any reservation of rights against or any notice to or assent by the
Subordinated Creditor, any demand for payment of any of the Senior Obligations
may be rescinded, in whole or in part, and any of the Senior Obligations may be
continued or extended, and the Senior Creditors may exercise or refrain from
exercising any rights and remedies against the Borrower or any other Loan Party
and the collateral therefor, all without impairing, abridging, releasing or
affecting the subordination provisions or any of the other agreements or
obligations of the Subordinated Creditor or the Borrower contained in this
Agreement. Nothing in this Agreement shall be construed to create or impose
upon the Administrative Agent or any of the other Senior Creditors any
fiduciary duty to the Subordinated Creditor or any other implied obligation to
act or refrain from acting with respect to the Borrower, any of the other Loan
Parties or the collateral therefor, or with respect to any of the Senior
Obligations in any manner that is contrary to what the Administrative Agent and
the Senior Creditors may determine from time to time is in its or their own
interests.
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SECTION 4. No Commencement of Any Proceeding. (a) The Subordinated
Creditor agrees that, so long as the Subordination Termination Date shall not
have occurred, the Subordinated Creditor will not sue for, nor, so long as any
Default has occurred and is continuing, take, ask or demand from the Borrower,
payment of all or any of the Subordinated Debt, or commence, or join with any
creditor other than the Administrative Agent and the other Senior Creditors in
commencing, or directly or indirectly cause the Borrower to commence, or assist
the Borrower in commencing, any Insolvency Event.
(b) If the Subordinated Creditor, in contravention of this Agreement,
shall commence, prosecute or participate in any of the proceedings mentioned in
Section 4(a), then the Administrative Agent may intervene and interpose as a
defense or plea the making of this Agreement in its name or the name of the
Borrower.
SECTION 5. Rights of Subrogation. The Subordinated Creditor hereby
unconditionally and irrevocably agrees that no payment or distribution to the
Administrative Agent, on behalf of itself or any of the other Senior Creditors,
pursuant to the provisions of this Agreement shall entitle the Subordinated
Creditor to exercise any right of subrogation in respect thereof, nor shall the
Subordinated Creditor have any right of reimbursement, restitution,
exoneration, contribution or indemnification whatsoever from any property or
assets of the Borrower, any of the other Loan Parties or any of the other
guarantors, sureties or providers of collateral security for the Senior
Obligations, or any right to participate in any claim or remedy of the
Administrative Agent or any of the other Senior Creditors against the Borrower
or any of the collateral for the Senior Obligations, whether or not such claim,
remedy or right arises in equity or under contract, statute or common law
(including, without limitation, the right to take or receive from the Borrower,
directly or indirectly, in cash or other property and assets or by set off or
in any other manner, payment or security on account of such claim, remedy or
right), until the Subordination Termination Date. If any amount shall be paid
to the Subordinated Creditor in violation of the immediately preceding sentence
at any time prior to the Subordination Termination Date, such amount shall be
held in trust for the benefit of the Administrative Agent and the other Senior
Creditors, shall be segregated from all other property and funds of the
Subordinated Creditor and shall forthwith be paid to the Administrative Agent
for the account of the Senior Creditors in the same form as so received (with
any necessary indorsement) for the account of the Senior Creditors (or the
successors thereto) for application (in the case of cash) to, or as collateral
(in the case of noncash property or securities) for, the payment or prepayment
of the Senior Obligations owed to the applicable Senior Creditors until such
Senior Obligations shall have been paid in full.
SECTION 6. Subordination Legend; Further Assurances. The Subordinated
Creditor and the Borrower will cause each instrument evidencing Subordinated
Debt to be endorsed with the following legend:
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"THE DEBT EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED PURSUANT TO,
AND TO THE EXTENT PROVIDED IN, THE INTERCOMPANY SUBORDINATION AGREEMENT
DATED MARCH 31, 1997 BY THE MAKER HEREOF AND PAYEE NAMED HEREIN IN FAVOR
OF THE ADMINISTRATIVE AGENT AND THE OTHER SENIOR CREDITORS REFERRED TO
THEREIN."
If any of the Subordinated Debt is not evidenced by an instrument, the
Subordinated Creditor and the Borrower each will mark its books of account in
such a manner as shall be effective to give proper notice of the effect of this
Agreement and will, in the case of any Subordinated Debt which is not evidenced
by any instrument, upon the Administrative Agent's request, promptly cause such
Subordinated Debt to be evidenced by an appropriate instrument or instruments
endorsed with the legend set forth above. The Subordinated Creditor and the
Borrower each will, at its expense and at any time and from time to time,
promptly execute and deliver all further instruments and documents, and take
all further action, that may be necessary or desirable, or that the
Administrative Agent may reasonably request, in order to protect any right or
interest granted or purported to be granted under this Agreement or to enable
the Administrative Agent or any of the other Senior Creditors to exercise and
enforce its rights and remedies hereunder.
SECTION 7. Agreements in Respect of Subordinated Debt, Etc. (a) The
Subordinated Creditor will not:
(i) Sell, assign, pledge, encumber or otherwise dispose of any of the
Subordinated Debt unless such sale, assignment, pledge, encumbrance or
disposition (A) is to a Person other than the Borrower or any of its
Affiliates and (B) is made expressly subject to the terms of this Agreement;
or
(ii) Permit the terms of any of the Subordinated Debt to be amended,
waived, supplemented or other modified in such a manner as could reasonably
be expected to have a material adverse effect upon the rights or interests
of the Administrative Agent or any of the other Senior Creditors under this
Agreement or any of the Loan Documents.
(b) The Subordinated Creditor shall promptly notify the Administrative
Agent of the occurrence of any default under the Subordinated Debt.
SECTION 8. Agreement by the Borrower. The Borrower agrees that it will not
make any payment of any of the Subordinated Debt, or take any other action, in
contravention of the provisions of this Agreement.
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SECTION 9. Senior Obligations Hereunder Not Affected. All rights and
interests of the Administrative Agent and the Senior Creditors hereunder, and
all agreements and other Obligations of the Subordinated Creditor and the
Borrower under this Agreement, shall remain in full force and effect
irrespective of, and the Subordinated Creditor hereby irrevocably waives any
defenses it may now or hereafter have in any way relating to, any or all of the
following:
(a) any lack of validity or enforceability of the Credit Agreement or any
of the other Loan Documents, any of the other agreements or instruments
relating to any of the Senior Obligations, or any other agreement or
instrument relating to any of the foregoing;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Senior Obligations, or any other amendment or
waiver of or any consent to any departure from the Credit Agreement or any
of the other Loan Documents, any of the other agreements or instruments
relating to any of the Senior Obligations, including, without limitation,
any increase in the Senior Obligations resulting from the extension of
additional credit to the Borrower or any of its Subsidiaries or otherwise;
(c) any taking, exchange, release or nonperfection of any collateral for
the Senior Obligations, or any taking, release or amendment or waiver of or
consent to departure from any guaranty, for all or any of the Senior
Obligations;
(d) any manner of application of any collateral for the Senior
Obligations, or proceeds thereof, to all or any of the Senior Obligations,
or any manner of sale or other disposition of any collateral for the Senior
Obligations or any other assets of the Borrower or any of its Affiliates;
(e) any change, restructuring or termination of the corporate structure or
existence of the Borrower or any of its Affiliates; or
(f) any other circumstance (including, without limitation, any statute of
limitations or the existence of or reliance upon any representation by the
Administrative Agent or any of the other Senior Creditors) that might
otherwise constitute a defense available to, or a discharge of, the Borrower
or a subordinated creditor.
SECTION 10. Waivers and Acknowledgments. (a) The Subordinated Creditor and
the Borrower each hereby unconditionally and irrevocably waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Senior Obligations and this Agreement; and any requirement that the
Administrative Agent or any of
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the Senior Creditors protect, secure, perfect or insure any Lien or any
property or assets subject thereto or exhaust any right or take any action
against the Borrower or any other Person or any collateral or any other
collateral for the Senior Obligations.
(b) The Subordinated Creditor and the Borrower each hereby unconditionally
and irrevocably waives any duty on the part of the Administrative Agent or any
of the other Senior Creditors to disclose to the Subordinated Creditor any
matter, fact or thing relating to the business, condition, operations,
properties or prospects of the Borrower or any of its Subsidiaries now or
hereafter known by the Administrative Agent or such other Senior Creditor.
(c) The Subordinated Creditor and the Borrower each hereby unconditionally
waives any right to revoke this Agreement, and acknowledges that this Agreement
is continuing in nature at all times on or prior to the Subordination
Termination Date and applies to all of the Subordinated Debt and all of the
agreements and other Obligations of the Subordinated Creditor under this
Agreement, whether existing now or in the future.
(d) The Subordinated Creditor acknowledges that it will receive
substantial direct and indirect benefits from the financing arrangements
contemplated by the Loan Documents and the other agreements or instruments
relating to any of the Senior Obligations, and that the waivers set forth in
Section 9 and in this Section 10 are knowingly made in contemplation of such
benefits.
SECTION 11. Representations and Warranties. The Subordinated Creditor and
the Borrower each hereby represent and warrant as follows:
(a) The Subordinated Debt now outstanding, true and complete copies of
instruments evidencing which have been furnished to the Administrative
Agent, has been duly authorized, issued and delivered by the Borrower, has
not been amended or otherwise modified except as set forth in Preliminary
Statement (3) of this Agreement, and constitutes the legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms. There exists no default in respect of any such
Subordinated Debt.
(b) The Subordinated Creditor is the legal and beneficial owner of the
Subordinated Debt now outstanding, free and clear of any Lien.
(c) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived.
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(d) The Subordinated Creditor has, independently and without reliance upon
the Administrative Agent or any of the other Senior Creditors and based on
such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement.
SECTION 12. Amendments, Waivers, Etc. (a) No amendment or waiver of any
provision of this Agreement, and no consent to any departure by the
Subordinated Creditor or the Borrower herefrom, shall in any event be effective
unless the same shall be in writing and signed by the Administrative Agent and
the Required Lenders, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
(b) The Subordinated Creditor hereby agrees that no failure on the part of
the Administrative Agent or any of the other Senior Creditors to exercise, and
no delay in exercising, any right, power or privilege hereunder shall operate
as a waiver thereof or a consent thereto; nor shall any single or partial
exercise of any such right, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
Subordinated Creditor hereby agrees that the remedies herein provided are
cumulative and not exclusive of any remedy provided by applicable law.
SECTION 13. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including telegraphic, telecopy or
telex communication) and mailed, telegraphed, telecopied, telexed or delivered
by an overnight courier of recognized standing, if to the Subordinated
Creditor, at each of the addresses listed below each such Subordinated
Creditor's name on the signature pages hereof; if to the Borrower, the Agents
or any Lender, at its address specified in Section 8.02 of the Credit
Agreement; or as to each party, at such other address as shall be designated by
such party in a written notice to each other party. All such notices and other
communications shall, when deposited in the mails, delivered to the telegraph
company, transmitted by telecopier, confirmed by telex answerback or delivered
by overnight courier, be effective when deposited in the mails, delivered to
the telegraph company, telecopied, confirmed by telex answerback or delivered
to the overnight courier, respectively.
SECTION 14. Expenses. The Subordinated Creditor and the Borrower jointly
and severally agree to pay to the Administrative Agent, upon demand, any and
all costs and expenses, including the reasonable fees and expenses of its
counsel and of any experts or agents, which the Administrative Agent or any or
any of the other Senior Creditors may incur in connection with the (a) the
administration of this Agreement, (b) the exercise or enforcement of any of the
rights of the Administrative Agent or the Senior Creditors hereunder or (c) the
failure by the Subordinated Creditor or the Borrower to perform or observe any
of the terms or provisions of this Agreement.
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SECTION 15. Continuing Agreement; Assignments Under the Credit Agreement.
This Agreement is a continuing agreement and shall (a) remain in full force and
effect until the Subordination Termination Date, (b) be binding upon the
Subordinated Creditor, the Borrower and their respective successors and
assigns, and (c) inure to the benefit of, and be enforceable by, the
Administrative Agent, the Senior Creditors and their respective successors,
transferees and assigns. Without limiting the generality of the clause (c) of
the immediately preceding sentence, any of the Lenders may assign or otherwise
transfer all or any portion of its rights and obligations under the Credit
Agreement (including, without limitation, all or any portion of its Commitment,
the Advances and any Note to be held by it) to any other Person, and such other
Person shall thereupon become vested with all the rights in respect thereof
granted to such Lender Party herein or otherwise, in each case as provided in
section 8.07 of the Credit Agreement.
SECTION 16. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of a manually executed counterpart of
this Agreement.
SECTION 17. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.
SECTION 18. Severability. In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, the validity, legality and enforceability
of the remaining provisions of this Agreement shall not in any way be affected
or impaired thereby.
IN WITNESS WHEREOF, the Subordinated Creditor and the Borrower each has
caused this Agreement to be duly executed and delivered by its officer
thereunto duly authorized as of the date first above written.
GENERAL NUTRITION COMPANIES, INC.
By /s/
--------------------------
Name:
Title:
Address: 921 Penn Avenue
Pittsburgh, PA 15222
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GENERAL NUTRITION, INCORPORATED
By /s/
--------------------------
Name:
Title:
Address: 921 Penn Avenue
Pittsburgh, PA 15222
<PAGE> 1
Exhibit 10.30
AMENDMENT NUMBER 8
TO EMPLOYMENT AGREEMENT OF
WILLIAM E. WATTS
Amendment Number 8, dated as of November 4, 1996 to Employment
Agreement, dated as of March 24, 1989 and previously amended as of July 24,
1989, August 18, 1989, December 1, 1990, October 19, 1993, January 28, 1994,
and January 27, 1995 and August 24, 1996 (the "Employment Agreement"), between
General Nutrition, Incorporated (the "Company") and William E. Watts
("Executive"). Capitalized terms used herein without definition shall have the
meanings assigned to them in the Employment Agreement.
WHEREAS, the Compensation Committee of the Board of Directors of the
Company by unanimous consent, approved an amendment of Executive's Employment
Agreement.
NOW, THEREFORE, in consideration of Executive's continued performance
of his duties as an officer of the Company, the Company and Executive hereby
agree that:
1. The Employment Period is hereby extended until February 3, 2001.
All references to January 31, 1992 as amended to January 31, 1995 as amended
January 31, 1998 and as further amended to February 1, 2000 in the Employment
Agreement, are hereby changed to references to February 3, 2001.
2. Section 3(a) of the Employment Agreement "Base Salary" is hereby
amended to increase Executive's base salary to $900,000 per year effective
October 13, 1996.
3. Section 3(b) of the Employment Agreement "Incentive Bonus" is
hereby deleted in its entirety .
4. The first sentence of Section 3(f) of the Employment Agreement is
modified effective October 13, 1996 as follows:
(f) Executive shall be entitled to personal use of the
Company's private airplane for up to 100 hours per year plus up to
$35,000 per year in airplane related expenses, (pilots lodging, meals
and other incidental expenses related to operation of the airplane) as
part of his compensation, and such compensation shall include
additional amounts to approximate the federal and any state income
taxes applicable to such additional compensation. In addition,
subsequent references to 75 hours of use per year are changed to 100
hours per year.
5. Section 3(g) of the Employment Agreement, "Lump Sum Retention
Payment" is hereby deleted in its entirety.
6. In consideration for the changes to the Employment Agreement the
Company
<PAGE> 2
shall pay to Executive $90,000 in a lump sum upon execution of the Amendment
Number 8 to the Employment Agreement.
7. In lieu of executive receiving the $1.5 million lump sum retention
payment due February 1, 2000, and in consideration for the other changes to the
Employment Agreement the Company shall pay to Executive $396,000 in a lump sum
upon execution of the Amendment Number 8 to the Employment Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL NUTRITION, INCORPORATED
By:
------------------------------
Its:
-----------------------------
---------------------------------
EXECUTIVE
<PAGE> 1
Exhibit 10.31
AMENDMENT NUMBER 6
TO EMPLOYMENT AGREEMENT OF
JERRY D. HORN
Amendment Number 6, dated as of November 4, 1996 to the Employment
Agreement, dated as of March 24, 1989 and previously amended as of July 24,
1989, and previously amended as of July 24, 1989, August 18, 1989, December 1,
1990, August 16, 1991 and October 13, 1993 (the "Employment Agreement"),
between General Nutrition, Incorporated (the "Company") and Jerry D. Horn
("Executive"). Capitalized terms used herein without definition shall have the
meanings assigned to them in the Employment Agreement.
WHEREAS, the Compensation Committee of the Board of Directors of the
Company by unanimous consent, approved an amendment of Executive's Employment
Agreement.
NOW, THEREFORE, in consideration of Executive's continued performance
of his duties as an officer of the Company, the Company and Executive hereby
agree that:
1. The Employment Period is hereby extended until February 3, 2001.
All references to January February 3, 1993 as amended to February 1, 1995, as
further amended January 31, 1998 in the Employment Agreement, are hereby
changed to references to February 3, 2001.
2. Section 3(a) of the Employment Agreement is hereby amended to
provide that Executive's base salary shall be as set forth below for the fiscal
years indicated. The salary amounts are fixed and do not adjust for cost of
living increases.
Fiscal Year Ending January 31, 1998 -- $300,000
Fiscal Year Ending February 6, 1999 -- $250,000
Fiscal Year Ending February 5, 2000 -- $200,000
Fiscal Year Ending February 3, 2001 -- $150,000
3. Section 11 of the Agreement entitled "Consulting Services," is
hereby deleted in its entirety.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL NUTRITION, INCORPORATED
By:
------------------------------
Its:
-----------------------------
---------------------------------
EXECUTIVE
<PAGE> 1
EXHIBIT 11.1
GENERAL NUTRITION COMPANIES, INC
AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
FEBRUARY 4, FEBRUARY 3, FEBRUARY 1,
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1995 1996 1997
- ------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Net earnings before extraordinary items...................... $45,744 $69,146 $ 3,935
Loss from extraordinary items................................ (8,550) -- --
----------- ----------- -----------
Net earnings available for common shares..................... $37,194 $69,146 $ 3,935
======== ======== ========
Elimination of tax effected interest expense on convertible
debt for fully diluted per share calculations.............. $ 1,759 $ 872 $ --
======== ======== ========
Common stock................................................. 76,378 82,406 84,907
Outstanding warrants......................................... 1,340 -- --
Outstanding options.......................................... 2,310 3,454 1,387
----------- ----------- -----------
Primary weighted average common shares....................... 80,028 85,860 86,294
======== ======== ========
Common stock................................................. 76,378 82,406 84,907
Outstanding warrants......................................... 1,356 -- --
Outstanding options.......................................... 2,364 3,875 1,501
Conversion of convertible debt into common stock............. 8,196 3,976 --
----------- ----------- -----------
Fully diluted weighted average common shares................. 88,294 90,257 86,408
======== ======== ========
PRIMARY EARNINGS PER SHARE:
Earnings before extraordinary items........................ $ 0.57 $ 0.81 $ 0.05
Loss from extraordinary items.............................. (0.11) -- --
----------- ----------- -----------
Total earnings per share................................... $ 0.46 $ 0.81 $ 0.05
======== ======== ========
FULLY DILUTED EARNINGS PER SHARE:
Earnings before extraordinary items........................ $ 0.54 $ 0.78 $ 0.05
Loss from extraordinary items.............................. (0.10) -- --
----------- ----------- -----------
Total earnings per share................................... $ 0.44 $ 0.78 $ 0.05
======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of General Nutrition Companies, Inc.*
<TABLE>
<CAPTION>
OWNERSHIP BY
SUBSIDIARIES JURISDICTION COMPANY LISTED
- ------------ ------------ --------------
<S> <C> <C>
General Nutrition, Incorporated PA General Nutrition Companies, Inc.
General Nutrition Corporation PA General Nutrition, Incorporated
(d/b/a General Nutrition Centers)
General Nutrition Products, Inc. SC General Nutrition, Incorporated
General Nutrition Investment Company DE General Nutrition, Incorporated
General Nutrition Services, Inc. DE General Nutrition Investment Company
General Nutrition Distribution Company PA General Nutrition Services, Inc.
(99%)/General Nutrition, Incorporated (1%)
GNC Franchising, Inc. PA General Nutrition, Incorporated
General Nutrition International, Inc. DE GNC Franchising, Inc.
GNC International Holdings, Inc. DE General Nutrition International, Inc.
GNC Foreign Sales Corporation Barbados GNC International Holdings, Inc.
GNC Puerto Rico, Inc. PR General Nutrition Corporation
(d/b/a General Nutrition Centers)
GNC Amphora Company DE General Nutrition, Incorporated
(d/b/a Amphora Company)
General Nutrition Centres Company Nova Scotia 90% owned by GNC (Canada)
(d/b/a General Nutrition Centres) Holding Company; 10% owned by
GNC Limited
Nature Food Centres, Inc. MD General Nutrition Corporation
NFC, Inc. MA Nature Food Centres, Inc.
GNC (UK) Holding Company DE General Nutrition Investment Company
Health and Diet Group Limited UK GNC (UK) Holding Co.
</TABLE>
<PAGE> 2
EXHIBIT 21.1 CONTINUED
<TABLE>
<CAPTION>
OWNERSHIP
SUBSIDIARIES JURISDICTION COMPANY LISTED
- ------------ ------------ --------------
<S> <C> <C>
Health and Diet Food Company Limited UK Health & Diet Group Limited
Health and Diet Centres Limited UK Health & Diet Group Limited
GNC (Canada) Holding Company DE General Nutrition, Incorporated
GNC, Limited DE General Nutrition, Incorporated
General Nutrition PTY Limited New South Wales General Nutrition Investment Company
DFC Thompson Australia Pty. Limited New South Wales General Nutrition Investment Company
Nature's Fresh Northwest, Inc. DE General Nutrition, Incorporated
General Nutrition Government Services, Inc. DE General Nutrition, Incorporated
(d/b/a General Nutrition Centers)
General Nutrition Centres (NZ) Limited NZ General Nutrition Investment
Company (51% ownership)
</TABLE>
* Does not include certain subsidiaries which are not significant subsidiaries
of the Registrant as of the Fiscal Year Ended February 1, 1997, as defined
in Rule 1-02(w) of Regulation SX.
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-58096, 33-68590,
33-93370, 333-00128 and 333-21397 of General Nutrition Companies, Inc. on Form
S-8 of our report dated March 31, 1997, appearing in this Annual Report on Form
10-K of General Nutrition Companies, Inc. for the year ended February 1, 1997.
Pittsburgh, Pennsylvania
May 1, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000880120
<NAME> GENERAL NUTRITION COMPANIES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> JAN-31-1996
<PERIOD-END> FEB-01-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 58,711
<ALLOWANCES> 0
<INVENTORY> 198,361
<CURRENT-ASSETS> 293,473
<PP&E> 175,352
<DEPRECIATION> 0
<TOTAL-ASSETS> 779,355
<CURRENT-LIABILITIES> 159,785
<BONDS> 377,885
0
0
<COMMON> 913
<OTHER-SE> 239,311
<TOTAL-LIABILITY-AND-EQUITY> 782,650
<SALES> 990,845
<TOTAL-REVENUES> 990,845
<CGS> 614,875
<TOTAL-COSTS> 614,875
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,341
<INCOME-PRETAX> 43,006
<INCOME-TAX> 39,071
<INCOME-CONTINUING> 3,935
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,935
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
