SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(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 6, 1999
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 issuer as specified in its charter)
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 office) (Zip Code)
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 $0.01
(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 29, 1999, 67,856,738 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 $1,080,008,446 based on the last reported
sale price of the Common Stock on the NASDAQ Stock Market.
DOCUMENTS INCORPORATED BY REFERENCE:
Incorporated by
Document Reference in Document Part No.
Portions of General Nutrition Companies, Inc. Proxy
Statement for its 1999 Annual Meeting of Stockholders III
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C> <C> <C> <C> <C> <C>
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Part I
Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 12
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
13
Item 6. Selected Consolidated Financial Information and Other Data 14
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition
15
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
43
Part III
Item 10. Directors and Executive Officers of the Registrant 44
Item 11. Executive Compensation 46
Item 12. Security Ownership of Certain Beneficial Owners and Management 46
Item 13. Certain Relationships and Related Transactions 46
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 47
Signatures 50
</TABLE>
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. At February 6, 1999,
domestically, the Company's products were sold primarily through 3,757 General
Nutrition Centers(TM) and GNC Live Well(TM) stores ("GNC"), of which 2,531 are
owned and operated by the Company and 1,226 are franchised. Internationally, the
Company operates 19 Health and Diet Centres(R) and 24 General Nutrition
Centres(R) in the United Kingdom, 92 General Nutrition Centres(R) in Canada and
3 stores in New Zealand. There are also 196 operating franchise stores in 25
international markets. 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, and through a strategic alliance with Rite Aid
Corporation to open a minimum of 1,500 GNC(R) stores within Rite Aid locations
over a three year period; (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 products, and increased economies of
scale.
Set forth below is the Company's net revenue, operating earnings, diluted
earnings per common share and store information for years 1994 through 1998.
<TABLE>
<CAPTION>
Company Growth
1994 1995 1996 1997 1998
---------------- ----------------- -------------- -------------- ----------------
(52 weeks) (52 weeks) (52 weeks) (52 weeks) (53 weeks)
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenue $ 672,945 $ 845,952 $ 990,845 $1,193,485 $ 1,417,746
Operating earnings 97,750 137,116 60,347 191,171 183,337
Diluted earnings per share 0.44 0.78 0.05 1.24 1.18
Operating earnings as
adjusted* 98,425 138,699 152,413 195,254 194,548
Diluted earnings per
share as adjusted* 0.54 0.79 0.95 1.27 1.28
Total number of stores 2,115 2,543 3,047 3,435 4,091
Comparable store sales
(GNC stores) 5.8% 10.3% 0.3% 7.9% -0.2%
</TABLE>
* Operating earnings and earnings per share have been adjusted for
comparative purposes, excluding 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 2,593 new GNC stores, net of closings, of which 1,522 are company-owned
and 1,071 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 to expand into secondary locations as well as into
international markets. In 1998, the Company opened 561 new domestic GNC stores,
of which 409 are company-owned and 152 are franchised. In 1998, the Company
opened 58 General Nutrition Centres in Canada and 5 in the United Kingdom.
Additionally, 45 franchise stores opened in various international markets.
Additional store growth is expected in 1999 as the Company continues its store
expansion program for company-owned and franchised locations as well as the
addition of approximately 350 stores within Rite Aid locations. In Franchising,
at February 6, 1999, there were awards and development agreements to open an
additional 323 domestic and 428 international franchise locations. Comparable
Store Sales. During 1998, comparable store sales were down 0.2% in company-owned
GNC locations and increased 6.9% in franchise GNC locations. The comparable
store sales decrease at company-owned GNC locations was driven by decreased
margins due to the Company revising its pricing strategy, lowering prices on
branded sports products and certain commodity vitamins, a slowing of the herb
category sales as strong publicity and a media campaign in 1997 were not
repeated in 1998, and the mass channel accelerating their expansion into the
market as well as new large companies entering into the market. The Company's
plans to increase comparable store sales include the continued introduction or
reformulation of value added specialty branded products supplemented with
increased marketing; product pricing adjustments to improve unit movement and
the ongoing refinement of its store presentation. In 1998, the Company
introduced 243 new or reformulated proprietary branded products and plans to
introduce more than 45 additional products in 1999. 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 the store formats are updated, comparable store sales in the
first year after conversion are higher than in those stores not converted.
Set forth below for the periods presented, are comparable store sales for
company-owned and franchise stores in the United States.
<TABLE>
<CAPTION>
Comparable Store Sales
Stores 1994 1995 1996 1997 1998
- ---------------------------- ---------------- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Company-owed 5.8% 10.3% 0.3% 7.9% -0.2%
Franchise 19.0% 15.5% 8.5% 16.4% 6.9%
</TABLE>
Enhanced Profitability. The Company continues to focus on improving its
profitability by attempting to shift its mix to proprietary branded products
that 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/ Wholesale. For financial information concerning
segments, see Note 16 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 BrandTM, Pro
Performance(R), ChallengeTM, Herbal Plus(R), Nature's Fingerprint(R), Preventive
Nutrition(R), Optibolic(R), Bio-Remedy(R), Harvest of NatureTM, Orchard
Blends(R), and Opti-Body(R). In addition, the Company carries various
third-party brand name products including WeiderTM, Advanced Research
Products(R), Twin Lab(R), Nature's Herbs(R), Nature's Way(R), EAS(R) 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 63 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. They have unique formulations based on the most recent science,
and therefore can command a premium for these high value-added special
nutritional formulas. The 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 and dietary
supplements designed to be taken in conjunction with a fitness program.
Management believes that these products, which include various protein and
weight gain powders, sports drinks, sports bars, and 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 one of the fastest growing categories of
the supplement market over the past five years. Herbal supplements are sold in
various hard-shell and soft gelatin capsules, tea and liquid forms. The Company
has consolidated its traditional herbal offerings under a single umbrella brand,
Herbal Plus(R). Within the Herbal Plus line, there are four tiers of herbs;
Fingerprinted, Concentrated, Standardized and Full Spectrum. In addition to the
Herbal Plus line, the Company also offers a line of whole food based supplements
under the Natural Brand(TM) label, a line of proprietary teas under the Harvest
of Nature(TM) brand as well as many well know third party products including
Nature's Way(R), Kyolic(R) and Ginsana(R).
Diet Products. The diet category consists of various 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 GNC
proprietary brand products 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 health related snack items that carry a
higher gross margin. This category has been de-emphasized as part of the
Company's ongoing reallocation of shelf space to higher-margin, specialty
non-food products.
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 that contain harsh
chemicals.
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 6, 1999, there were approximately
3.5 million active Gold Card members.
The following table 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:
<TABLE>
<CAPTION>
1996 1997 1998
------------------------------ ----------------------------- ----------------------------
(52 weeks) (52 weeks) (53 weeks)
% of Total % of Total % of Total
Sales Sales Sales
Sales Sales Sales
-------------- ------------ ------------- ------------ ------------ -----------
(sales in millions)
<S> <C> <C> <C> <C> <C> <C>
Vitamins & Minerals $ 233 35% $ 275 35% $ 313 34%
Sports Nutrition 182 27 212 27 279 30
Herbs 129 20 161 21 162 18
Diet Products 39 6 55 7 67 7
Food Products 18 3 17 2 21 2
Personal Care 26 4 25 3 34 4
Gold Card/Other 35 5 35 5 49 5
-------------- ------------ ------------- ------------ ------------ -----------
$ 662 100% $ 780 100% $ 925 100%
============== ============ ============= ============ ============ ===========
</TABLE>
Sales of the Company's GNC proprietary brands represented approximately
54%, 52% and 51% of the total retail sales in 1996, 1997 and 1998, respectively.
Sales of proprietary branded products continued to increase in 1997 and 1998,
although at a lessor percentage to total sales than certain third party sports
nutrition products.
Stores
At February 6, 1999, the Company operated a network of 2,669 retail stores,
of which 2,530 were located in the United States and Puerto Rico, 135 stores in
the United Kingdom and Canada and 3 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 1996, 1997 and 1998.
<TABLE>
<CAPTION>
Number of Company-Owned Stores Operating at Year End
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Operating Name 1996 1997 1998
- ------------------------------------------------------ ----------------- ---------------- ----------------
Domestic
General Nutrition Centers 1,760 2,086 2,496
Nature's fresh 6 6 6
Other 67 44 29
----------------- ---------------- ----------------
Total domestic stores 1,833 2,136 2,531
International
General Nutrition Centres 20 54 119
Health & Diet Centres 20 20 19
----------------- ---------------- ----------------
Total international stores 40 74 138
----------------- ---------------- ----------------
Total Company-owned stores 1,873 2,210 2,669
================= ================ ================
</TABLE>
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
fewer 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 which have been open at least one full year.
<TABLE>
<CAPTION>
Weighted Average Sales Per Store and Sales Per Square Foot
- -------------------------------------------------------------------------------------------------------------------------------
(sales in thousands)
Traditional Expansion
----------------------------------------------- --------------------------------------------
1996 1997 1998 1996 1997 1998
-------------- ------------ ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Number of Stores 836 826 812 878 910 1,203
Sales $ 530 $ 560 $ 567 $ 300 $ 317 $ 326
Sales per Square Foot $ 324 $ 342 $ 346 $ 199 $ 211 $ 221
</TABLE>
Updated Store Formats. In 1999, the Company will begin to rollout its new
concept store format. The store design consists of two formats, one for mall
locations and one for strip center expansion. The new store format presents an
upscale fixture design consisting of wood veneer finishes combined with the
latest lighting concepts. In addition, all store graphics have been redesigned
to better identify with the GNC customer and provide product information to
allow the consumer to make educated decisions regarding product purchases and
usage. Product lines within the stores will be reset to focus customer attention
to premium quality formulations and high demand private label products that
reach all customer demographic profiles. Product labeling will be consistent
within product lines and the store will present a unified approach to packaging
with emphasis on added information for the consumer.
All changes are intended to make for a better shopping experience for the
customer from aesthetics to product assortment and availability of information,
while promoting the new GNC theme, "The GNC Difference". Going forward, this new
format will be used by the Company in all new store construction. The Company
will continue to evaluate and modify its store formats to maximize productivity
and profitability.
Store Management. The Company's GNC stores are currently regionalized into
four divisions. Each division is led by a Vice President who, along with
managers responsible for merchandising and promotions, a Financial Analyst and a
network of Regional Sales Directors, manages company-owned store operations.
This decentralized organization has been in existence for over ten 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. The divisions also provide
operational support to the franchisees through a network of field operational
consultants.
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 46,000 square feet. The Company plans to open an
additional three stores during 1999. Please see the subsequent event note for
additional information related to Nature's fresh.
Amphora. In 1996, the Company acquired Amphora; a one-store retail concept
offering aromatherapy based bath, body, and relaxation products. During 1998,
the Company made a strategic decision to refocus on its core business and, as
such, the Amphora concept was discontinued and the Company recognized a charge
of $3.3 million during the fourth quarter.
General Nutrition Centres. In 1996 the Company opened 10 stores in Canada,
9 stores in the United Kingdom and 1 store in New Zealand, to test the GNC
retail concept in these international markets. The Canadian stores have proven
to be successful with 92 operating stores at February 6, 1999. The Company plans
to open an additional 50 Canadian stores during 1999. The United Kingdom, with
24 stores open, continues to be evaluated for future growth. The GNC retail
concept in New Zealand was discontinued which resulted in the Company taking a
charge of $.3 million during the fourth quarter of 1998.
Health and Diet Centres. In 1995, the Company purchased Health and Diet
Centres, a 20 store health retail chain in the United Kingdom. The stores offer
products similar to that of a GNC store with a greater mix of health food
products and fewer 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 a 12.9% share of the total retail supplement market,
including the vitamins, minerals, herbs, and sports nutrition categories,
compared with 10.8% in 1994.
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 (15.7%, 12.6%, and 13.8% in 1999, 2000, and 2001,
respectively), reaching $11.6 billion by 2000 and $13.2 billion by 2001. 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 1998, usage of
vitamins grew from 36% of the population to 45%; usage of herbs grew from 14% of
the population to 37%, and 5% of US households used sports nutrition products
during 1998. The overall alternative medicine category grew at an average of 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 a place to purchase these products.
In 1998, the Company spent $62.6 million on domestic retail advertising and
other marketing efforts, or approximately 6.1% of retail net revenue, compared
with $47.6 million, or approximately 5.5% of retail net revenue in 1997.
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 an
additional 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 1998 by the co-op was $24.4 million, up
from $17.0 million in 1997. There were 60 co-ops in place at February 6, 1999.
No additional co-op formations are anticipated in 1999.
Advertising. The Company remains committed to positioning the GNC Brand as
the customer's inspirational partner in living his or her best life. The "Live
Well" positioning is communicated through a consistent and integrated approach
to television, radio and print, creative media placement, in-store graphics, and
other promotional materials. The Company has made substantial gains in customer
perception and credibility, which management believes are a direct result of the
"Live Well" market positioning and executions. In 1999, the Company launched a
new campaign to further enhance GNC's premier positioning in the market. This
campaign entitled "The GNC Difference", features ten unique points of difference
that illustrate how GNC stands out from the competition. The ten featured points
of difference are promoted via a series of fifteen second television
commercials, print and outdoor billboard advertising. Additionally, the in-store
graphics are modified to incorporate "The GNC Difference", thus creating a
comprehensive, integrated message.
In 1999, the Company signed an agreement to have Bill Parcells, coach of
the New York Jets, act as its spokesperson for the Pro Performance line of
sports nutrition products. A comprehensive television, print, radio and direct
marketing campaign was developed around Mr. Parcells to generate increased
awareness and sales for the Pro Performance line.
Training. The Company has developed and tested an interactive touchscreen
kiosk, which disseminates consumer information via an independent service called
the BioNutritional Encyclopedia. The BioNutritional Encyclopedia allows
customers to easily search through a compilation of balanced research on over
150 nutritional substances. The kiosk also features interactive product
knowledge training for the store staff. Product training curriculum was
developed in electronic format for the entire product line and the kiosks were
rolled out to the company-owned stores during 1998.
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 6,
1999 of approximately 3.5 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 $50 per transaction on "Super Tuesday"(the first Tuesday
of every month), the day on which Gold Card holders receive a 20% discount on
all purchases. The average sale per customer on Super Tuesday is roughly double
the Company's daily average. Gold Card members also receive complimentary copies
of Let's Live magazine. The magazine provides information on nutrition and
health and advertises special in-store promotions.
The database marketing system for the Gold Card Program allows matching and
analysis of consumer information; including who they are and what and when they
buy. During 1999, the database system will be used to increase card usage and
member participation rate on Super Tuesdays and during special sales and events,
to sell more product to the most likely prospects based on proven buying
patterns, to reduce communications costs to non-participating members, and to
increase Gold Card renewal rates.
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 Ph.D's. The group combines
high quality science with GNC product developments, 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, increasingly 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. During
1998, the Company revised its pricing strategy, adjusting prices on certain
branded sports products and commodity vitamins in response to continuing
competitive pressures from various market segments. 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. 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
As a means of enhancing the Company's operating performance and building
its store base, the Company, in mid 1988, opened it's first franchise location.
Since that time, the success of this program has been recognized numerous times
as one of the top franchise programs in the country including:
1994: Success magazine ranked GNC the number one franchise opportunity in a
survey of over 2,000 franchise operations.
1995: Franchise Buyer magazine ranked GNC the number one non-food retail
franchise
1996: Franchise Times magazine ranked GNC the sixth Retail and Specialty
Franchise in the United States.
1997: Franchise Times magazine ranked GNC the number one franchise in a
survey of the top 200 franchise businesses in the U.S.
1998: Entrepreneur International and Entrepreneur Japan magazines ranked
GNC the number one franchise.
The Company generates revenue and income from Franchising through the
initial franchise fees, the sale of product at wholesale prices, a royalty on
retail sales and interest income on amounts financed by the Company for the
initial purchase of the store's assets and store remodels. The Company selects
franchisees that will not only own but also operate the stores. The Company
believes that the consistency and customer service that an owner/operator
provides is important given the specialized nature of the Company's product
line. These franchises have demonstrated that GNC stores can be operated
successfully in strip center locations and smaller malls that were previously
considered secondary real estate by the Company. To assist the franchisee in the
successful operation of the stores, the Company offers a three-part training
program which includes classroom instruction, training in a company-owned
location, and actual "field" training after the franchise store opens. The
primary concentration of the training is product education and store operations.
The current franchise agreements are effective for a ten-year period. At
the end of the franchise agreement the Company has the option to permit renewal
of the agreement for another ten-year period at 50% of the franchisee fee that
is then in effect.
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:
<TABLE>
<CAPTION>
Number of Operating Franchise Locations
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1997 1998
--------------------------------- ------------------------------- -----------------------------
Franchise Locations Domestic International Domestic International Domestic International
- -------------------------------- --------------- --------------- ------------- ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
At beginning of year 848 111 1,049 125 1,074 151
Added during year 272 22 252 30 322 46
Closed or converted 71 8 227 4 170 1
---------------
=============== ============= ================ ============ ===============
At end of year 1,049 125 1,074 151 1,226 196
=============== =============== ============= ================ ============ ===============
Development agreements
and stores awarded but
not yet open 259 374 422 387 323 428
</TABLE>
Domestic. The Company's current franchising program is directed primarily
toward existing franchisees and third parties. New franchisees to the system in
1999 are required to pay an initial fee of $32,500 for a franchise license,
$27,500 if the applicant is an existing GNC franchise operator. The Company
offers limited financing to qualified franchisees at current fixed interest
rates of 13.75% per annum ordinarily for terms up to five years. In addition,
for franchisees that are relocating or remodeling their stores, the Company
offers special financing arrangements at interest rates between 9.25% and
11.25%. Once the store is 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 an additional 3% of sales
toward a national advertising fund. Reduced license fees of $10,500 and a lower
initial royalty fee of 4%, 5% and 6% for years 1, 2 and 3 with 6% for years
thereafter, respectively, are 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 eight. 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 and specific
products, and requires franchisees to obtain legal approval of any franchise
advertising. If a franchisee does not meet specified performance and appearance
criteria, the Company is permitted to terminate the franchise agreement. In
these situations, the Company may take possession of the location, inventory,
and equipment, and operate the store as company-owned or re-franchise the
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's
opening, the franchise is required to pay a continuing royalty of 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 1998, the Company opened a net 45
international franchise locations, increasing the number of locations to 196 in
international markets. At February 6, 1999, the Company had entered into
development agreements to open an additional 428 stores abroad.
MANUFACTURING/WHOLESALE
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 gelatin and hard shell capsules and also manufactures
certain powder products. The Company utilizes the plant primarily for the
production of proprietary products that are sold at GNC stores. Revenue at the
facility is generated through sales to various third parties when excess
capacity becomes available at the facility. Beginning in 1999, the Company,
through its wholesale division, will begin supplying Rite Aid private label
products as well as product jointly developed by GNC and Rite Aid for
distribution in all Rite Aid locations. The supply agreement with Rite Aid is a
five-year agreement with two five-year extension options. The Company will
continue to invest in the manufacturing facility to ensure sufficient capacity
to meet the demands of the Retail and Franchise businesses as well assist
wholesale distribution commitments. To allow for increased manufacturing
capacity requirements, in the fall of 1999 the Company will begin transferring
part of its manufacturing process and finished goods inventory to a new 660,000
square foot manufacturing and distribution facility which is currently under
construction in Anderson, South Carolina.
At Manufacturing/Wholesale 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 65 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 1998, Manufacturing/Wholesale
developed a total of 243 new or reformulated products with over 45 scheduled for
1999.
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, eleven different vendors supply approximately 67%
of the manufacturing facility's raw materials. No other single vendor accounts
for more than 1% 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 General
Nutrition Centres and Health and Diet Centres stores.
During 1996, the Company acquired the manufacturing operation of DFC
Thompson Australia Pty Limited ("DFC"), an Australian manufacturer. As part of
the Company's strategic decision to refocus on it's core business, the Company
is considering the divesture of DFC.
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 as well as the growing wholesale/distribution business, and
approximately 90% of products sold by franchisees, flow through the Company's
distribution centers. It is the Company's policy that all products be received
in the Company's distribution centers prior to sale to assure that such products
and their labels are reviewed for compliance with the Company's Federal Trade
Commission consent decrees. Scheduled deliveries are made directly to GNC stores
on a one or two-week basis and to its third party customers as required. The
Company's three distribution centers are located in Pittsburgh, Pennsylvania;
Atlanta, Georgia; and Phoenix, Arizona. The Company currently anticipates
closing the Atlanta, Georgia facility and relocating it to the new Anderson,
South Carolina facility in the fall of 1999. Each of the distribution centers is
equipped with up-to-date automated conveyor systems and quality computer systems
to meet the requirements of the continuing store expansion program as well as
the growing wholesale distribution business.
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 dietary supplements.
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 law amends the Federal Food, Drug, and Cosmetic Act
("DSHEA") 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. 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 FDA
before it may be marketed. The legislation also recognizes the need for the
dissemination of information about the link between nutrition and 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 other labeling.
On September 23, 1997, the FDA issued final new regulations to implement
the 1994 legislation. Among other things, these new regulations establish a
procedure for dietary supplement companies to notify the FDA about the intended
marketing of a new dietary ingredient or about the use in labeling of statements
of nutritional support. The regulations also establish a new format for
nutrition labeling on dietary supplements. The new format became mandatory on
March 23, 1999, and the Company revised all of its dietary supplements labels to
be in compliance by that date.
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 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 90% 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 concerning 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. New regulations 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 6, 1999, the Company employed 16,888 people, of whom
approximately 15,273 were employed in Retail; 1,189 were employed in
Manufacturing/Wholesale; 46 were employed in Franchising and 380 were employed
in corporate support functions. None of the Company's employees are covered by a
collective bargaining agreement.
ITEM 2. PROPERTIES
The Company leases its stores, distribution centers, office facilities, and
its 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 2,530 domestic
company-owned stores operating at February 6, 1999, an estimated 64% of the
store leases are scheduled for renewal over the next five years.
The Company owns its vitamin production facility in Greenville, South
Carolina, as well as the Natures fresh, Lake Oswago store located in Portland
Oregon. The Company has made annual capital investments in the facility for
expansion purposes to meet rising product demands. The Company will also own the
new 660,000 square foot manufacturing and warehouse facility that is currently
under construction in Anderson, South Carolina.
ITEM 3. LEGAL PROCEEDINGS
For information concerning Legal Proceedings, see Note 14 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.
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 $120 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
None
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, when outstanding, are traded on the Chicago Board Options
Exchange.
Common Stock Prices:
<TABLE>
<CAPTION>
1997 1998
------------------------------------ ----------------------------------
Quarter High Low High Low
---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First 23 1/2 17 3/8 41 1/4 33 3/8
Second 28 5/8 20 1/8 37 1/4 27 7/8
Third 30 1/2 25 1/4 32 1/2 9
Fourth 36 5/8 27 7/8 21 9 5/8
</TABLE>
Registrar and Transfer Agent:
THE BANK OF NEW YORK Send Certificates for Transfer and
1-800-524-4458 Address Changes To:
Address Shareholder Inquires to:
Shareholder Relations Department-11E Receive and Deliver Department-11W
P.O. Box 11258 P.O. Box 11002
Church Street Station Church Street Station
New York, NY 10286 New York, NY 10286
E-Mail Address: The Bank of New York's Stock Transfer
[email protected] Website: http://stock.bankofny.com
On April 29, 1999, the Company had approximately 1,287 stockholders of
record and in excess of 33,000 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. During fiscal
1997, the Board of Directors authorized an additional $150 million to be
available for such purchases. During fiscal 1998, the Board of Directors
authorized an additional $300 million to be available for such purchases. At
February 6, 1999 an aggregate of 26.7 million shares had been repurchased for
$551.5 million. All repurchased shares have been retired.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
<TABLE>
<CAPTION>
5-YEAR SUMMARY OF CONSOLIDATED FINANCIAL DATA
(in thousands, except weighted average sales and per share data)
1994 1995 1996 1997 1998
--------------- -------------- -------------- -------------- ---------------
(52 weeks) (52 weeks) (52 weeks) (52 weeks) (53 weeks)
Operating Results:
<S> <C> <C> <C> <C> <C>
Net revenue $ 672,945 $ 845,952 $ 990,845 $ 1,193,485 $ 1,417,746
Cost of sales, including costs of
warehousing, distribution and
occupancy 419,136 519,420 614,875 726,016 896,539
Selling, general and
administrative 155,384 187,833 223,557 272,215 337,594
Restructuring charge - - 80,243 - -
Compensation expense -
non-cash 675 1,583 11,823 4,083 276
--------------- -------------- -------------- -------------- ---------------
Earnings before interest and income
taxes (operating earnings)
97,750 137,116 60,347 191,171 183,337
Interest expense 19,669 20,076 17,341 22,926 36,608
Income taxes 32,337 47,894 39,071 64,880 55,752
--------------- -------------- -------------- -------------- ---------------
Net earnings $ 45,744 $ 69,146 $ 3,935 $ 103,365 $ 90,977
=============== ============== ============== ============== ===============
Basic earnings per share $ 0.60 $ 0.84 $ 0.05 $ 1.27 $ 1.21
=============== ============== ============== ============== ===============
Diluted earnings per $ 0.54 $ 0.78 $ 0.05 $ 1.24 $ 1.18
=============== ============== ============== ============== ===============
* Restructuring charge represents the discontinuance of the Natures Food
Centres concept in 1996.
* Included in the cost of sales and the selling, general and administrative
line items for 1998 are charges of $5.9 million and $5.0 million, respectively,
for asset disposition, certain severance costs, and costs of repackaging
products to meet the requirements of DSHEA.
Operating Data:
Number of stores (at end of period)
Company-owned domestic GNC stores
1,181 1,462 1,760 2,086 2,496
Company-owned other stores 184 122 113 124 173
Franchised stores 750 959 1,174 1,225 1,422
--------------- -------------- -------------- -------------- ---------------
Total system-wide stores 2,115 2,543 3,047 3,435 4,091
Company-owned domestic GNC store:
Weighted average annual sales per
square foot $ 267 $ 283 $ 262 $ 267 $ 269
Weighted average sale per customer
$ 17.75 $ 19.60 $ 21.48 $ 23.74 $ 24.09
Comparable store sales 5.8% 10.3% 0.3% 7.9% -0.2%
February 4, 1995 February 3, February 1, January 31, February 6, 1999
1996 1997 1998
--------------- -------------- -------------- -------------- ---------------
Balance Sheet Data:
Working capital $ 74,274 $ 52,681 $ 133,688 $ 141,361 $ 211,142
Total assets 626,571 682,851 779,355 933,938 1,127,986
Total outstanding indebtedness 316,501 218,472 378,869 358,348 797,500
Shareholders' equity 202,837 326,657 240,223 350,712 104,916
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS 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/Wholesale. The
following table summarizes the results by segment for years 1996, 1997 and 1998.
Fiscal 1998 comprised 53 weeks compared to 52 weeks in fiscal 1997. 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
1996 Revenue 1997 Revenue 1998 Revenue
------------- ------------ --------------- ------------ --------------- ------------
(52 weeks) (52 weeks) (53 weeks)
(in thousands)
Net Revenue:
<S> <C> <C> <C> <C> <C> <C>
Retail $ 726,758 73.3% $ 868,794 72.8% $ 1,034,307 73.0%
Franchising 188,296 19.0 229,177 19.2 247,102 17.4
Manufacturing/
Wholesale 75,791 7.7 95,514 8.0 136,337 9.6
------------- ------------ --------------- ------------ --------------- ------------
Consolidated 990,845 100.0 1,193,485 100.0 1,417,746 100.0
Operating Earnings:
Retail $ 98,282 13.5% $ 127,362 14.7% $ 103,001 10.9%
Franchising 40,714 21.6 49,546 21.6 59,496 24.1
Manufacturing/
Wholesale 38,213 50.4 48,403 50.7 57,540 42.2
Corporate (24,796) - (30,057) - (36,424) -
------------- ------------ --------------- ------------ --------------- ------------
152,413 15.4 195,254 16.4 183,613 13.7
Non-cash compensation
$ 11,823 1.2% $ 4,083 0.4% $ 276 0.8%
Restructuring Charge
80,243 8.1% - - - -
------------- ------------ --------------- ------------ --------------- ------------
Operating earnings 60,347 6.1 191,171 16.0 183,337 12.9
Interest expense, net 17,341 1.8 22,926 1.9 36,608 2.6
Income taxes 39,071 3.9 64,880 5.4 55,752 3.9
------------- ------------ --------------- ------------ --------------- ------------
Net earnings $ 3,935 0.4% $ 103,365 8.7% $ 90,977 6.4%
============= ============ =============== ============ =============== ============
</TABLE>
* Included in operating earnings for 1998 are charges of $5.9 million and
$5.0 million, respectively for asset disposition, certain severance costs, and
costs of repackaging products to meet the requirements of DSHEA.
1998 Versus 1997
Consolidated. Net revenue for 1998 increased to $1.4 billion, an increase
of 18.8% over 1997. This increase was driven by the success of the Compan's
store expansion program and increased demand for the Company's products, as
reflected by increased sales, across all business segments; Retail, Franchising
and Manufacturing/Wholesale. At February 6, 1999, the Company sold its products
though a network of 4,091 stores, 2,669 of which are company-owned and 1,422 are
franchised and are located primarily in the United States, Puerto Rico, and in
25 international markets. Additionally, revenue is generated from
Manufacturing/Wholesale through sales to third parties. In 1998 system-wide
retail sales (company-owned and franchise) from domestic GNC stores increased to
$1.4 billion or 12.6% over 1997.
Consolidated operating earnings decreased by 4% to $183.6 million in 1998
compared to 1997. Excluding non-cash compensation expense and non-recurring
items in both years, operating earnings decreased by.4% in 1998. This decrease
was due primarily to adjustments made to better align the Company's pricing on
certain sports nutrition and commodity vitamin products to address increased
competitive pressures. Additionally, advertising expenditures increased in 1998
to $68.2 million or 4.8% of net revenue compared with $53.5 million or 4.5% in
1997 due to the Company's sponsorship of the Olympic games during the first
quarter of 1998.
During 1998, the Company recorded various charges for severance, asset
dispositions, and the labeling requirements of DSHEA as well as non-cash
compensation. The charges totaled $11.2 million, of which, $9.6 million was
recorded in the fourth quarter.
Retail. The Company sells its products at Retail primarily in GNC Stores.
Revenue from non-GNC stores was $88.9 million or 8.6% of Retail revenue in 1998
compared to $83.2 million or 9.6% of Retail revenue in 1997. GNC stores are
located primarily in the U.S. and Puerto Rico ("Domestic"). At February 6, 1999
there were 2,496 domestic company-owned GNC stores as well as 92 in Canada, 24
in the United Kingdom, and 3 stores in New Zealand.
Revenue from Domestic GNC stores was $924.5 million in 1998 compared with
$780.3 million in 1997. The revenue increase was generated through effective
advertising and new product offerings and the net addition of 401 new stores
that included 136 franchise stores that were converted to company-owned
locations. For the stores open more that one year, comparable store sales
decreased 0.2% in 1998 when compared to the same period in 1997. The comparable
store sales decrease was driven by decreased margins due to the Company revising
its pricing strategy, lowering prices on branded sports products and certain
commodity vitamins and a slowing of the herb category sales as strong publicity
and a media campaign in 1997 were not repeated in 1998 and additional
competition from both the mass market and other specialty retail stores. In
addition, the Company adjusted its pricing strategy, lowering prices on certain
branded sports products and commodity vitamins in order to respond to increasing
competitive pressures. The Company believes that this new pricing strategy,
coupled with it's store opening program and increased advertising, will allow
the Company to continue to improve its percentage share of the vitamin and
supplement market in 1999.
Operating earnings from Retail were $103.0 million in 1998 compared with
$127.4 million in 1997. The decrease of $24.3 million or 19% was driven by
decreased margins due primarily to adjustments made to better align the
Company's pricing on certain sports nutrition and commodity vitamin products to
address increased competitive pressures and a slowing of the herb category sales
as strong publicity and a media campaign in 1997 were not repeated in 1998.
During 1998, the Company developed a web site, GNC.com, to sell products
via the Internet. Although still in the early stages of operation, the Company
expects sales to increase based on the growth of the Internet.
Franchising. Revenue from Franchising increased to $247.1 million, a 7.8%
increase over 1997. Franchising revenue is generated primarily from product
sales at wholesale prices and royalties on franchise retail sales. These
categories represented 90.8% of total franchise revenue in 1998 and 92.7% in
1997. Additionally, revenue is generated from the initial franchise license fee,
sales of store fixtures and graphics materials and interest income for the
financing of the purchase of the store including the initial stock of inventory
In 1998 retail sales from franchised locations increased to $414.5 million,
a 1.5% increase over 1997. Franchise stores which were open more than 1 year
reported comparable store sales increases of 6.9% in 1998 compared with 16.4% in
1997. Those franchises that were in their first year of reporting comparable
store sales had 1998 sales increases of 21.8% when compared with the sales in
their first year of operations.
Operating earnings from Franchising improved to $59.5 million, a 20.3%
increase over 1997. The improvement in earnings was primarily the result of
increases in royalties and product sales caused by the 6.9% rise in comparable
store sales, as well as the net addition of 197 new franchise locations in 1998.
The Company believes that the improvement in revenue and operating earnings
from store growth will continue in 1999 as a result of existing franchise
license awards where the store locations are not yet opened. At February 6, 1999
there were, through awards or development agreements, 323 domestic and 428
international license fees paid for store locations that were not yet open.
Manufacturing/Wholesale. The Company utilizes its primary manufacturing
facility, which is located in Greenville, South Carolina, for the production of
propriety products, which are sold at GNC stores. The Company sells products to
third parties when excess capacity becomes available at its Greenville facility
as well as at its other manufacturing facilities in the United Kingdom and
Australia. Revenue from sales to third parties in 1998 increased to $136.3
million, a 42.7% increase over 1997. Sales generated from the Greenville
facility were $121.7 million in 1998, representing a 51% increase over 1997
sales. Revenue from the international facilities was $14.6 million in 1998.
During 1998, operating earnings at Manufacturing/Wholesale increased $9.1
million or 18.4% over 1997. The increase was driven by the increased demand for
commodity vitamins from third parties.
The Company believes that third-party sales will continue to increase in
1999 as capacity grows with the addition of a new manufacturing/distribution
facility, currently under construction in Anderson, South Carolina which is
scheduled to be operational in the fall of 1999, and as a result of the alliance
formed between the Company and Rite Aid during the fourth quarter of 1998. The
Company aligned itself with Rite Aid to increase its market share in the vitamin
and supplement market and to gain entry into the growing mass-market
distribution channel. Rite Aid will open 1,500 full line GNC stores within
select Rite Aid locations over the next three years. The Company will also
manufacture all of Rite Aid's private label supplement products as well as
jointly develop a new line of dietary supplements called "PharmAssure(TM)" which
will be manufactured at the Company's Greenville facility. PharmAssure will be
available exclusively at GNC and Rite Aid stores.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $65.4 million or 24.0% in 1998 when
compared to 1997. The 1998 increase exceeded the increase in net revenue of
18.8% by 5.2% This 5.2% increase results from several factors including expenses
of $4.9 million related to severance costs and the costs related to DSHEA
relabeling and increased advertising costs of $14.7 million related to the
Company's sponsorship of the 1998 Winter Olympics.
Non-Operating Expenses. Interest expense, including amortization of
deferred financing fees, increased to $36.6 million in 1998 compared with $22.9
million in 1997. The increase in interest expense for 1998 when compared with
1997 is primarily the result of additional borrowings on the Company's revolving
credit facility to repurchase 15,000,000 shares of the Company's common stock
for $356.8 million primarily in the second and third quarters of 1998 and to
fund the repurchase of 136 franchise locations completed primarily in the first
and second quarters of 1998.
Non-cash Compensation Expense. In 1998, the Company recorded $0.3 million
of non-cash compensation expense associated with its Management Stock Purchase
and Option plans compared with $4.1 million in 1997.
1997 Versus 1996
Consolidated. Revenue for 1997 increased to $1.2 billion, an increase of
20.5% over 1996. The continuing success of the Company's store expansion program
as well as increased demand for the Company's products resulted in 1997 revenue
and earnings increases over 1996 in each of the Company's business segments;
Retail, Franchising and Manufacturing/Wholesale. At January 31, 1998, the
Company sold its products though a network of 3,435 stores, 2,210 of which are
company-owned and 1,225 are franchised and are located primarily in the United
States, Puerto Rico, and in 19 international markets. Additionally, revenue is
generated from Manufacturing/Wholesale through sales to third parties. In 1997
system-wide retail sales (company-owned and franchise) from domestic GNC stores
increased to $1.2 billion or 20.4% over 1996.
Consolidated operating earnings, before restructuring, non-cash
compensation costs and non-recurring items, increased in 1997 to $195.3 million
or 28.1% when compared with 1996. The Company continued to leverage on its
vertical integration increasing the operating earnings return on sales in 1997
to 16.4%, up from 15.4% in 1996.
Retail. The Company sells its products at Retail primarily in GNC Stores.
The Company also recognized retail revenue from non-GNC stores including
Nature's fresh, Health and Diet Centres, Amphora and Natures Food Centres. In
1997 total revenue from these non-GNC stores was $83.2 million or 9.6% of total
retail revenue. GNC stores are located primarily in the U.S. and Puerto Rico. At
January 31, 1998 there were 2,086 domestic company-owned GNC stores as well as
34 in Canada, 19 in the United Kingdom, and 1 store in New Zealand.
Revenue from domestic GNC stores was $780.3 million in 1997 compared with
$661.6 million in 1996. The revenue increase was generated through comparable
store sales increases of 7.9% generated through effective advertising and new
product offerings, and the net addition of 326 new stores which included 222
franchise stores that were converted to company-owned locations. As a result of
the increases to revenue from comparable store sale increases and franchise
store acquisitions, operating earnings increased to $131.2 million in 1997, a
29% increase over 1996.
Operating earnings from Retail were $127.4 million in 1997 compared with
$98.3 million, prior to a restructuring charge of $80.2 million, in 1996. The
increase of $29.1 million or 29.6% was driven by the continued success of the
Company's store expansion program as well as increased demand for the Company's
products as herb category sales increased due to a strong publicity and a media
campaign in 1997.
Franchising. Revenue from Franchising increased to $229.2 million, a 21.7%
increase over 1996. Franchising revenue is generated primarily from product
sales at wholesale prices and royalties on franchise retail sales. These
categories represented 92.7% of total franchise revenue in 1997 versus 90.6% in
1996. Additionally, revenue is generated from the initial franchise license fee,
sales of store fixtures and graphics materials and interest income for the
financing of the purchase of the store.
In 1997 retail sales from franchised locations increased to $408.2 million,
a 17.4% increase over 1996. Franchise stores which were open more than 1 year
reported comparable store sales increases of 16.4% in 1997 compared with 8.5% in
1996. Those franchises that were in their first year of reporting comparable
store sales had 1997 sales increases of 33.7% when compared with the sales in
their first year of operations.
Operating earnings from Franchising improved to $49.5 million, a 21.7%
increase over 1996. The improvement in earnings was primarily the result of
increases in royalties and product sales caused by the 16.4% rise in comparable
store sales, as well as the net addition of 51 new franchise locations in 1997.
Manufacturing/Wholesale. The Company utilizes its primary manufacturing
facility, located in Greenville, South Carolina, for the production of propriety
products that are sold at GNC stores. The Company sells products to third
parties when excess capacity becomes available at its Greenville facility as
well as its other manufacturing facilities in the United Kingdom and Australia.
Revenue from Manufacturing/Wholesale in 1997 increased to $95.5 million, a 26.0%
increase over 1996. In 1997, the South Carolina facility had sales to third
parties of $80.6 million, a 25.3% increase over 1996 sales. The increases in
revenue continue to be driven by the demand for commodity vitamins from third
parties as well as the success of the Company's store expansion program, which
increased the internal demand. Revenue from the manufacturing facilities in
Australia and the United Kingdom was $14.9 million or 15.6% of total
manufacturing revenue.
As a result of the increases in revenue, operating earnings in
Manufacturing/Wholesale increased to $48.4 million or 26.7% over 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $48.7 million or 21.8% in 1997 when
compared to 1996. The 1998 increase in SG&A costs was exceeded by the increase
in net revenue of 20.4% by 1.4%. This favorable relationship was due, in part,
to the exceptional sales growth which occurred during 1997.
Non-Operating Expenses. Interest expense, including amortization of
deferred financing fees, increased to $22.9 million in 1997 compared with $17.3
million in 1996. The increase in interest expense for 1997 when compared with
1996 is primarily the result of additional borrowings on the Company's revolving
credit facility to repurchase 1,665,000 shares of the Company's common stock for
$35.1 million in the second quarter of 1997 and to fund the repurchase of 222
franchise locations completed primarily in the third and fourth quarters of
1997.
Non-cash Compensation Expense. In 1997, the Company recorded $4.1 million
of non-cash compensation expense associated with its Management Stock Purchase
and Option plans compared with $11.8 million in 1996.
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, to
renovate existing stores, to acquire independent and franchised locations, and
in 1996, 1997 and 1998 to repurchase the Company's common stock. The average
cost to build or renovate an average GNC store ranges from $60,000 to $125,000,
depending on type and size of the store. Additionally, the Company continues to
increase capacities at its distribution and manufacturing facilities. The
Company is currently in the process of constructing a new
manufacturing/distribution facility in Anderson, South Carolina. As of February
6, 1999, $8.1 million had been expended for construction. It is currently
anticipated than approximately $61.0 million will be expended during fiscal 1999
to complete the facility. The Company will continue its store, distribution and
manufacturing expansion programs in 1999 and will fund the requirements for
these programs primarily from operations and amounts available on its revolving
credit facility. During fiscal 1998, the Company entered into an additional
credit facility in order to finance stock repurchases and for general corporate
purposes. This term facility provides for additional borrowings of up to $150
million, which, when combined with the revolving credit facility, increased the
maximum borrowing availability from $700 million to $850 million. At February 6,
1999, the Company had $51.3 million available on its revolving credit facility
after excluding $2.7 million restricted for letters of credit and had no amounts
available on the term facility as all available amounts had been drawn down.
The Company's cash flows from operating, investing, and financing
activities as reflected in the Consolidated Statements of Cash Flows (see Item
8) are summarized as follows:
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------------------
February 1, January 31, February 6,
1997 1998 1999
------------------ ------------------ ----------------
(52 weeks) (52 weeks) (53 weeks)
(in thousands)
Cash provided by (used in):
<S> <C> <C> <C>
Operating activities $ 63,444 $ 141,642 $ 133,536
Investing activities (107,380) (143,456) (198,678)
Financing activities 43,351 2,615 65,170
Effect of exchange rate changes on cash 585 (801) (28)
changes on cash
================== ================== ================
$ $ $
- - -
Net change in cash -
================== ================== ================
</TABLE>
Operating Activities. Cash provided by operating activities decreased $8.1
million or 5.7% from 1997 to 1998. The decrease is primarily the result of four
factors including, a $12.4 million or 12.0% decrease in net earnings and a $46.7
million increase in inventory offset by a $31.7 million increase in accounts
payable and accrued liabilities and an increase in other working capital items
of $11.1 million. These changes were driven by decreased margins due to the
Company revising its pricing strategy, lowering prices on branded sports
products and certain commodity vitamins and a slowing of the herb category sales
as strong publicity and a media campaign in 1997 were not repeated in 1998. In
1997, cash provided by operating activities increased to $141.6 million, a
123.3% increase over 1996. Receivables and inventory grew by $9.5 million and
$37.2 million, respectively, in 1997 as the Company continued it's successful
store expansion program through franchising and new company-owned locations.
Investing Activities. The Company's primary use of funds in 1996 was for
capital expenditures and business acquisitions. In 1997 and 1998, the primary
use of funds was for capital expenditures and to fund the repurchase, by the
Company, of 222 and 263 franchise locations for approximately $78.9 and $62.4
million, respectively.
Capital expenditures were $69.9 million, $57.9 million and $110.7 million
for 1996, 1997, and 1998 respectively. The majority of the capital spending was
to build new stores, relocate or remodel existing locations and to expand the
Company's manufacturing and distribution capacity. The 1998 increase of $52.8
million or 91% over 1997 relates to the completion of a new Nature's fresh
prototype store, the accelerated opening of new Company stores, increased
spending at Manufacturing/Wholesale related to the expansion of the Greenville,
South Carolina facility and the commencement of construction of a new
manufacturing facility/distribution center in Anderson, South Carolina.
In 1997, the Company advanced $8.4 million to a related party who, as a
partner with the Company, has refurbished an office building in Pittsburgh,
Pennsylvania to serve as the Company's headquarters. The Company is permitted to
lend up to $30.0 million under the terms of its existing revolving credit
facility. As of January 31, 1998 and February 6, 1999, the note receivable was
$21,960 million and $28,526, respectively.
Financing Activities. In 1996, 1997 and 1998 the Company's Board of
Directors authorized the use of up to $610 million for the repurchase of the
Company's common stock. At February 6, 1999, the Company had utilized $551.5
million to purchase 26,665,000 shares of common stock. All repurchased shares
have been retired. In 1997, the Company amended and restated its credit
agreement to increase the maximum borrowing availability on the revolving credit
facility from $400 million to $700 million. The Company incurred a cost of $1.8
million in connection with this transaction. During 1998, the Company entered
into an additional credit facility in order to finance stock repurchases and for
general corporate purposes. The new facility allows for additional borrowings of
up to $150 million. The Company incurred a cost of $0.5 million in connection
with this transaction. At February 6, 1999 the Company, after a letter of credit
restriction of $2.7 million, had $51.3 million available on its revolving credit
facility. Additionally in 1998, the Company received net proceeds of $2.8
million by trading put options giving the Company the potential obligation to
purchase 3.5 million shares of its own stock for $118.8 million. At February 6,
1999, the Company no longer has any obligation related to the put options as all
related shares were purchased and subsequently retired by the Company.
Recently Adopted Accounting Standards. The Company has adopted Statement of
Financial Standards ("SFAS") No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which was issued in June of 1997. This new
accounting standard requires disclosure of segment information on the same basis
that is used internally for evaluating performance and allocating resources.
Accordingly, the Company reports three worldwide segments: Retail, Franchising,
and Manufacturing/Wholesale. All of the Company's products that do not fall into
one of these three segments are represented in the category titled
Corporate/Other.
Subsequent Event. As part of the Company's strategy to re-focus on its core
business, on April 22, 1999, the Company executed a definitive agreement to sell
its Nature's fresh Northwest gourmet grocery store chain to Wild Oats Markets,
Inc. The Company expects to complete this transaction during the second quarter
of 1999, and will reflect such transaction in the Company's second quarter
results.
Year 2000. The Year 2000 problem arises from the fact that many existing
information technology ("IT"), hardware, software systems and non-information
technology ("non-IT") products containing embedded microchip processors were
originally programmed to represent any date with six digits (e.g., 12/31/99), as
opposed to eight digits (e.g., 12/31/1999). Accordingly, problems may arise for
many such products and systems when attempting to process information containing
dates that fall after December 31, 1999. As a result, many such products and
systems could experience miscalculations, malfunctions or disruptions.
Additionally, such products and systems may experience miscalculations,
malfunctions or disruptions caused by other dates, such as September 9, 1999
(9/9/99), which was a date traditionally used as a default date by computer
programmers. This problem is commonly referred to as the "Year 2000" problem,
and the acronym"Y2K" is commonly substituted for the phrase "Year 2000."
The Company's State Of Readiness For Its Year 2000 Issues. As a result of
the Company's software upgrades and computer system purchases over the past few
years, a substantial number of the Company's computer systems should not have a
Y2K problem (i.e., are "Y2K-compliant") or have been warranted to be
Y2K-compliant by third-party vendors. The Company has created a task force (the
"Y2K Task Force"), that includes members from the Company's significant
operating areas. To date, the Y2K Task Force has implemented a program, the goal
of which is to assess the potential exposure of each such area to the Y2K
problem, which is the first phase of the Company's overall Y2K program, and, as
the second phase thereof, has designed a coordinated plan to determine whether
any such potential exposure would result in a problem that would require some
remediation. As each such area's Y2K problems are identified, the third phase
will be to formulate proposals to determine the best course of action to address
each such problem and to address each such problem through remediation and
testing. The final phase of the overall Y2K program will be both independent and
coordinated testing to ensure Y2K compliance in each operating area. The Company
believes that the Y2K Task Force has identified all material IT and non-IT
systems owned or operated by the Company that require a Y2K compliance review.
The Y2K Task Force has the responsibility for addressing any Y2K problems in
either IT or non-IT systems. All of the Company's IT systems, including its
accounting and human resources, are, at a minimum, in testing phase. Testing for
Y2K compliance has already begun for each such system and the Y2K Task Force
estimates that testing of the Company's most critical IT systems will be
substantially completed by the Company's first quarter of 1999 and that the Y2K
project will be completed no later than the end of the Company's second quarter,
which is prior to any anticipated material impact on its operating systems.
The Y2K Task Force has also identified those third parties, such as
software and hardware suppliers, significant vendors and external file exchange
providers, whose Y2K compliance or lack thereof may pose problems for the
Company. Pursuant to the Y2K Task Force's plan, inquiries have been sent to
those third parties. The Y2K task force has been receiving initial responses to
its inquiries from all such third parties and has been taking the appropriate
action based on the responses. External file exchange providers whose data are
essential to the Company's most critical systems and software suppliers will
undergo testing regardless of their responses to the Company's inquiries.
The Costs To Address The Company's Year 2000 Issues. The Company has used,
and will continue to use, principally internal resources to reprogram or
replace, test and implement its IT and non-IT systems for Y2K modifications. The
Company does not presently track the internal costs incurred on the Y2K project.
Such costs are principally payroll and related costs for its internal IT
personnel. The total cost of the Y2K project, excluding these internal costs,
have been nominal and have been funded through operating cash flows. The cost of
purchases allocated for hardware and software, as well as all other expenditures
will be expensed as incurred or capitalized in accordance with the Company's
fixed asset policy. Management currently believes that the total cost associated
with required modifications to become Year 2000 compliant will not have a
material adverse impact on its business, results of operations, liquidity or
financial condition. None of the Company's other significant IT projects have
been delayed or deferred as a result of the implementation of the plan.
Risks Related To The Company's Year 2000 Issues. The Company presently
believes it has an effective Plan in place to anticipate and resolve any
potential Y2K issues in a timely manner. In the event, however, that the Company
does not properly identify Y2K issues or the compliance assessment, remediation
and testing is not conducted on a timely basis with respect to the Y2K issues
that are identified, there can be no assurance that Y2K issues will not
materially and adversely affect the Company's results of operations or
relationships with third parties. In addition, disruptions in the economy
generally resulting from Y2K issues also could materially and adversely affect
the Company. The amount of potential liability and lost revenue that would be
reasonably likely to result from the failure by the Company and certain key
third parties to achieve Y2K compliance on a timely basis cannot be reasonably
estimated at this time. A contingency plan has not yet been developed for
dealing with the most reasonably likely worst case scenario, and such scenario
has not yet been clearly identified. The Company expects to complete its
analysis and contingency planning by the end of its third quarter.
The estimated costs of the Company's Plan and the dates by which the
Company believes it will have completed each of the phases of the Plan, are
based upon management's best estimates, which rely upon numerous assumptions
regarding future events, including the continued availability of certain
resources, third-party remediation plans, and other factors. These estimates,
however, may prove not to be accurate, and actual results could differ
materially from those anticipated. Factors that could result in material
differences include, without limitation, the availability and cost of personnel
with the appropriate training and experience, the ability to identify, assess,
remediate and test all relevant computer codes and embedded technology, and
similar uncertainties. In addition, Y2K-related issues may lead to possible
third-party claims, the impact of which cannot yet be estimated. No assurance
can be given that the aggregate cost of defending and resolving such claims, if
any, would not have a material adverse effect on the Company.
Quantitative and Qualitative Information About Market Risk. The Company is
exposed to financial, market and economic risks from transactions that are
entered into during the normal course of business. The Company's policies do not
permit active trading of, or speculation in, derivative financial instruments.
The Company's primary significant market risk exposure relates to interest rate
risk. The following is a summarization of the efforts to mitigate this interest
rate exposure. Interest Rate Risk
The Company manages its interest rate risk in order to balance its exposure
between fixed and variable rates while attempting to minimize its interest
costs. The Company's indebtedness as of February 6, 1999 is comprised primarily
of $646 million in borrowings outstanding under the revolving credit facility
and a $150 million bank term loan. Interest on the revolving credit 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 0.0% to 0.25% with Eurodollar advances being
subject to margin adjustments ranging from 0.5% to 1.5%. Applicable margin
adjustments for both advances are based upon financial performance covenants.
Interest on the bank term loan is variable based on prime plus add-on margins of
0.5% to 4.0% and/or Eurodollar plus add-on margins of 1.5% to 4.0%. Applicable
margin adjustments for both advances are based upon term limitations and
financial performance covenants. At February 6, 1999, the Company's blended
effective interest rate on borrowings outstanding was 6.9%. A hypothetical 69
basis point or 10% change in the blended effective interest rate assuming debt
levels as of February 6, 1999, would result in a $5.5 million increase or
decrease in interest costs.
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 (the "Company") as of February 6,
1999 and January 31, 1998 and the related consolidated statements of earnings
and comprehensive income, shareholders' equity and cash flows for the years
ended February 6, 1999, January 31, 1998 and February 1, 1997. Our audits also
included the financial statement schedule listed in the Index at Item 14.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule 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 6, 1999 and January 31, 1998 and the
results of their operations and their cash flows for the years ended February 6,
1999, January 31, 1998, and February 1, 1997 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Deloitte & Touche LLP
March 3, 1999 (April 22, 1999 as to Note 19)
Pittsburgh, Pennsylvania
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
January 31, 1998 February 6, 1999
-------------------- --------------------
ASSETS
Current Assets:
<S> <C> <C>
Receivables, net $ 75,274 $ 98,926
Inventories 244,196 294,325
Deferred taxes 14,190 17,617
Prepaid income taxes - 4,071
Other current assets 29,305 14,625
-------------------- --------------------
Total current assets 362,965 429,564
Note due from related parties 21,960 28,526
Property, plant, and equipment, net 207,975 275,473
Other assets 33,895 52,549
Deferred financing fees, net of accumulated
amortization of $2,646 and $3,889 3,710 3,032
Goodwill, net of accumulated amortization of
$62,327 and $74,425 303,433 338,842
==================== ====================
$ 933,938 $ 1,127,986
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 126,905 $ 121,386
Accrued salaries, wages, vacations and related taxes 23,542 23,009
Accrued income taxes 4,825 -
Other current liabilities 65,392 73,404
Long-term debt, current portion 940 623
-------------------- --------------------
Total current liabilities 221,604 218,422
Long-term debt 357,408 796,877
Deferred taxes 4,214 7,771
Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value: 819 677
Authorized 200,000,000 shares, issued and
outstanding, 81,930,801 shares at January 31, 1998
and 67,753,329 shares at February 6, 1999
Additional paid-in capital 171,224 -
Stock options outstanding 7,693 7,040
Subscriptions receivable (3,598) (3,804)
Accumulated other comprehensive loss (318) (346)
Accumulated earnings 174,892 101,349
-------------------- --------------------
350,712 104,916
-------------------- --------------------
$ 933,938 $ 1,127,986
==================== ====================
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings and Comprehensive Income
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------------------
February 1, January 31, February 6,
1997 1998 1999
------------------ ----------------- -------------------
(52 Weeks) (52 Weeks) (53 Weeks)
<S> <C> <C> <C>
Net revenue $ 990,845 $ 1,193,485 $ 1,417,746
Cost of sales, including costs of warehousing,
distribution and occupancy 614,875 726,016 896,539
------------------ ----------------- -------------------
375,970 467,469 521,207
Selling, general and administrative 223,557 272,215 337,594
Compensation expense - non-cash 11,823 4,083 276
Restructuring charge 80,243 - -
------------------ ----------------- -------------------
Operating earnings 60,347 191,171 183,337
Interest expense, net 17,341 22,926 36,608
------------------ ----------------- -------------------
Earnings before income taxes 43,006 168,245 146,729
Income taxes 39,071 64,880 55,752
------------------ ----------------- -------------------
Net earnings 3,935 103,365 90,977
Other comprehensive income (loss) -
Foreign currency translation adjustment, net of
income taxes 585 (801) (28)
------------------ ----------------- -------------------
Comprehensive income $ 4,520 $ 102,564 $ 90,949
================== ================= ===================
Basic earnings per share $ 0.05 $ 1.27 $ 1.21
================== ================= ===================
Basic weighted average common shares 84,907 81,140 75,302
================== ================= ===================
Diluted earnings per share $ 0.05 $ 1.24 $ 1.18
================== ================= ===================
Diluted weighted average common shares 86,294 83,227 76,797
================== ================= ===================
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Stock Subscriptions Comprehensive Accumulated Treasury
Stock Capital Options Receivable Income Earnings Stock Total
Outstanding
---------- ---------- ------------ ------------ ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, February 3, 1996 $ 877 $253,521 $ $ $ $ 67,592 $ $ 326,657
4,769 - (102) -
Net earnings - - - - - 3,935 - 3,935
Common stock issued 23 44,064 - - - - - 44,087
Subscription
receivable from
stock sales - - - (3,295) - - - (3,295)
Stock options granted - - 7,492 - - - - 7,492
Stock options 7 9,645 (1,344) - - 8,308
exercised - -
Sale of put options - 2,850 - - - - - 2,850
Treasury stock purchases - - - - - - (159,619) (159,619)
Business combination 6 9,217 - - - - - 9,223
Translation - - - - - 585
adjustments 585 -
---------- ---------- ------------ ------------ ------------- ------------- ---------- ---------
Balance, February 1, 1997 913 319,297 10,917 (3,295) 483 71,527 (159,619) 240,223
Net earnings - - - - - 103,365 - 103,365
Common stock issued 3 7,699 - - - - - 7,702
Subscription
receivable from
stock sales - - - (303) - - - (303)
Stock options 20 33,362 (3,224) - - 30,158
exercised - -
Sale of put options - 5,440 - - - - - 5,440
Treasury stock (117) (194,574) - - - (35,072)
activity, net - 159,619
Translation - - - - - (801)
adjustments (801) -
---------- ---------- ------------ ------------ ------------- ------------- ---------- ---------
Balance, January 31, 1998 819 171,224 7,693 (3,598) (318) 174,892 - 350,712
Net earnings - - - - - 90,977 - 90,977
Common stock issued 1 8,653 - - - - - 8,654
Subscription
receivable from -
stock sales - - (206) - - - (206)
Stock options 7 9,390 (653) - - 8,744
exercised - -
Sale of put options - 2,834 - - - - - 2,834
Treasury stock purchases (150) (192,101) - - - (164,520) - (356,771)
Translation - - - - - (28)
adjustments (28) -
------------- ------------- ---------
========== ========== ============ ============ ==========
Balance, February 6, 1999 $ 677 $ $ 7,040 $ $ $ 101,349 $ $ 104,916
- (3,804) (346) -
========== ========== ============ ============ ============= ============= ========== =========
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
GENERAL NUTRITION COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------------------
February 1, January 31, February 6,
1997 1998 1999
------------------ ------------------ -------------------
(52 weeks) (52 weeks) (53 weeks)
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $ 3,935 $ 103,365 $ 90,977
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Restructuring charge 80,243 - -
Depreciation and amortization 40,533 44,005 57,847
Amortization of deferred financing fees 649 1,108 1,243
Loss on disposal of fixed assets - - 4,993
(Increase) decrease in deferred taxes (10,388) 7,465 130
Compensation expense 11,823 4,083 276
Other 392 257 2
Change in operating assets and liabilities, net of
acquisitions:
Increase in receivables (18,129) (9,506) (17,518)
Increase in inventories (54,590) (37,208) (46,737)
Increase in other assets (2,672) (585) (1,774)
Increase in accrued taxes 6,353 9,188 1,305
Increase in accounts payable and accrued liabilities 10,884 24,593 31,650
(Decrease) increase in other working capital items (5,589) (5,123) 11,142
------------------ ------------------ -------------------
Total adjustments 59,509 38,277 42,559
------------------ ------------------ -------------------
Net cash provided by operating activities 63,444 141,642 133,536
------------------ ------------------ -------------------
Cash flows from investing activities:
Capital expenditures (69,853) (57,901) (110,720)
Proceeds from asset disposals - - 31
(Increase) decrease in franchisee notes receivable (8,024) 1,964 (10,676)
Payments for franchise store acquisitions (8,081) (78,867) (62,376)
Payments made for acquisitions, net of cash acquired (14,287) (256) -
Loan, investment in, and advances to related party (7,135) (8,396) (14,937)
------------------
------------------ -------------------
Net cash used in investing activities (107,380) (143,456) (198,678)
------------------ ------------------ -------------------
Cash flows from financing activities:
Net borrowings (repayments) on revolving credit facility 193,901 (19,500) 440,300
Retirement of long-term debt (36,268) - -
Increase (decrease) in book balance bank overdraft 3,866 32,362 (30,292)
Decrease in capital lease obligations (1,361) (1,021) (1,148)
Redemption of redeemable preferred stock (450) (184) (248)
Net proceeds from issuance of common stock and common stock
options 41,006 22,342 11,060
Net proceeds from sale of put options 2,850 5,440 2,834
Net payments for treasury stock (159,619) (35,072) (356,771)
Increase in deferred financing fees (574) (1,752) (565)
------------------ ------------------ -------------------
Net cash provided by financing activities 43,351 2,615 65,170
------------------ ------------------ -------------------
Effect of exchange rate changes on cash 585 (801) (28)
------------------
------------------ -------------------
Net change in cash - - -
Beginning balance, cash - - -
================== ================== ===================
Ending balance, cash $ - $ - $ -
================== ================== ===================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 17,121 $ 22,940 $ 36,102
Income taxes 41,556 51,807 57,755
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
Notes to Consolidated Financial Statements - continued
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, Puerto Rico, and 25 international markets. The retail
stores offer a variety of vitamin and mineral supplements, sports nutrition
products and herbs. The retail stores are also a leading provider of personal
care, and other health-related products. The retail segment recognizes revenue
at the moment that a sale to a customer is recorded.
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 a franchise 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 to a lesser degree 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 1998 presentation.
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 January 31, 1998, and February 6, 1999, cash overdrafts of
$32.4 million and $2.1 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.
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 certain business combinations,
for which the amortization periods range from 15 to 25 years.
Depreciation and amortization of property, plant and equipment was
$30.9 million, $34.4 million and $50.6 million for the years ended February 1,
1997, January 31, 1998, and February 6, 1999, 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 $42.1 million, $53.5 million and $68.2
million, respectively, for the years ended February 1, 1997, January 31, 1998,
and February 6, 1999.
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. Income tax expense/(benefit) related to items of other comprehensive
income were $0.3 million, ($0.4) million, and ($0.02) million for fiscal 1996,
1997, and 1998, 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. In 1996, 1997 and 1998, the Company's Board of Directors
authorized the use of up to $610 million to repurchase the Company's common
stock in the open market. In 1997 the Company retired 11.7 million shares it had
purchased at an average cost of $16.69 per share during 1996 and 1997 and held
in treasury. In 1998 the Company retired 15.0 million shares it had purchased at
an average cost of $23.78 per share. The Company's credit facilities limit the
amount of common stock that can be repurchased.
Note Due From Related Party. The Company is a limited partner in a
partnership that purchased and operates a building in Pittsburgh, Pennsylvania,
which serves 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 based on prime or Eurodollar rates plus a
margin percentage. At February 6, 1999, the average rates for prime and
Eurodollar borrowings were 7.75% and 5.94%, respectively. In 1999, a portion of
the amount due under the note was repaid to the Company during the first
quarter.
Investment In Related Party. During 1998, the Company made an investment of
$3.3 million in a vitamin company. The Company also made advances of $5.1
million to this company during the year. The Company has committed to fund the
operations of the company during 1999.
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.
New Accounting Pronouncements. In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 130 "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for reporting comprehensive income and its components, some of which
have been historically excluded from the Statement of Earnings and recorded
directly to the equity section of an entity's balance sheet. SFAS No. 130 also
requires that the cumulative balance of these items of other comprehensive
income are reported separately from retained earnings and additional paid-in
capital in the equity section of a balance sheet. This statement is effective
for fiscal years beginning after December 15, 1997. The Company has adopted SFAS
No. 130 in 1998 and has restated all prior periods presented.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way public companies report selected information about operating segments in
both quarterly and annual financial statements to their shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. This statement was not required to be
applied to interim financial statements in the initial year of its application.
Adoption of SFAS No. 131 did not have a significant effect on the disclosures in
the Company's consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value, with the potential
effect on operations dependent upon certain conditions being met. The statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Management is currently in the process of evaluating what impact, if any,
the adoption of the statement will have on its financial position or results of
operations when adopted.
NOTE 2. RECEIVABLES
Receivables at period end consisted of the following:
<TABLE>
<CAPTION>
January 31, 1998 February 6, 1999
------------------ -------------------
(in thousands)
<S> <C> <C>
Franchise $ 31,380 $ 35,691
Manufacturing/Wholesale trade 26,573 40,849
Current portion of franchise notes 9,954 10,955
Other 9,183 13,395
Allowance for uncollectible accounts (1,816) (1,964)
------------------ -------------------
$ 75,274 $ 98,926
================== ===================
</TABLE>
NOTE 3. INVENTORIES
Inventories at period end consisted of the following:
<TABLE>
<CAPTION>
January 31, 1998 February 6, 1999
------------------ -------------------
(in thousands)
<S> <C> <C>
Product ready for sale $ 201,155 $ 245,403
Unpackaged bulk product and raw materials 39,203 45,485
Packaging supplies 3,838 3,437
------------------ -------------------
$ 244,196 $ 294,325
================== ===================
</TABLE>
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at period end consisted of the following:
<TABLE>
<CAPTION>
January 31, 1998 February 6, 1999
------------------ -------------------
(in thousands)
<S> <C> <C>
Land, buildings and improvements $ 19,686 $ 26,950
Machinery and equipment 82,039 112,780
Leasehold improvements 87,830 105,991
Furniture and fixtures 114,500 136,261
Capital leases 4,554 9,255
Construction in progress 6,013 29,621
------------------ -------------------
314,622 420,858
Less: accumulated depreciation (106,647) (145,385)
------------------ -------------------
$ 207,975 $ 275,473
================== ===================
</TABLE>
NOTE 5. OTHER ASSETS
Other assets at period end consisted of the following:
<TABLE>
<CAPTION>
January 31, 1998 February 6, 1999
------------------ -------------------
(in thousands)
<S> <C> <C>
Franchise notes, less current portion $ 32,107 $ 41,782
Investment in and advances to related party - 8,371
Other 1,788 2,396
------------------ -------------------
$ 33,895 $ 52,549
================== ===================
</TABLE>
The notes from the Company's franchisees are demand notes, payable
primarily over five years. Interest accrues principally at the rate of 13.75%
per annum and is payable monthly. The Company has agreed to provide additional
funding to a related party of up to $15.0 million over the next year.
NOTE 6. LONG-TERM DEBT AND LINES OF CREDIT
Long-term debt at period end consisted of the following:
<TABLE>
<CAPTION>
January 31, 1998 February 6, 1999
----------------- ----------------
(in thousands)
<S> <C> <C>
Bank revolving credit facility $ 355,700 $ 646,000
Bank term loan - 150,000
Capital leases 2,648 1,500
----------------- ----------------
358,348 797,500
Less: current maturities (940) (623)
----------------- ----------------
$ 357,408 $ 796,877
================= ================
</TABLE>
The Company has a revolving credit facility that provides for borrowings of
up to $700 million and has a maturity date of July 1, 2002. At February 6, 1999,
the interest rate on the revolving credit facility was 6.06%. The agreement
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 0.0% to 0.25%, with Eurodollar advances being subject to margin
adjustments ranging from 0.5% to 1.5%. Applicable margin adjustments for both
advances are based upon financial performance covenants.. The revolving credit
facility is guaranteed by the Company and also by its domestic subsidiaries. At
January 31, 1998, and February 6, 1999, the Company had $341.4 million and $51.3
million available on its revolving credit facility after excluding $2.9 million
and $2.7 million restricted for letters of credit, respectively.
Additionally, during fiscal 1998, the Company entered into an additional
term credit facility in order to finance stock repurchases and for general
corporate purposes. The term facility provides for additional borrowings of up
to $150 million and bears interest at variable rates based on prime plus add-on
margins of 0.5% to 0.75% based on financial performance covenants and/or
Eurodollar plus add-on margins of 1.5% to 4.0% based on term limitations and
financial performance covenants. . At February 6, 1999, the interest rate on the
term credit facility was 9.06%. The agreement subjects the Company to certain
restrictions and covenants, including the restriction to pay dividends. The term
credit facility has a maturity date of July 1, 2002. At February 6, 1999 the
Company had no amounts available on the term facility as all available amounts
had been drawn down.
At February 6, 1999, the average rates for prime and Eurodollar borrowings
were 7.75% and 5.06%, respectively.
At February 6, 1999, the Company's total long-term debt maturities are as
follows:
<TABLE>
<CAPTION>
(in thousands)
-----------------------
<S> <C> <C>
1999 $ 623
2000 324
2001 244
2002 796,216
2003 93
-----------------------
$ 797,500
=======================
</TABLE>
The Company's net interest expense for all periods is as follows:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------------------
February 1, 1997 January 31, 1998 February 6, 1999
------------------ ----------------- ----------------
(52 weeks) (52 weeks) (53 weeks)
(in thousands)
Composition of interest expense:
<S> <C> <C> <C>
Interest on debt $ 17,336 $ 23,422 $ 37,447
Amortization of deferred financing fees 649 1,108 1,243
Interest income from related party - (1,239) (1,762)
Interest income - other (644) (365) (320)
------------------ ----------------- ----------------
$ 17,341 $ 22,926 $ 36,608
================== ================= ================
</TABLE>
NOTE 7. RESTRUCTURING CHARGE
During the year ended February 1, 1997, the Company recorded a
restructuring charge of $80.2 million. 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 related to unproductive assets, primarily inventory relating to Natural
Solutions(R) fitness and apparel products, all of which have been discontinued,
as well as the excess costs resulting from retrofitting the Alive prototype
store.
NOTE 8. SUPPLEMENTAL CASH FLOW INFORMATION
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.
The Company extended net loans to executives of $3.3 million, $0.3 million
and $0.2 million in 1996, 1997 and 1998, respectively, relating to the 1996
Management Stock Purchase Plan.
The Company recorded a tax benefit of $3.8 million, $11.4 million and $6.7
million in 1996, 1997 and 1998, respectively, primarily as a result of stock
option activity.
The Company exchanged $4.4 million in inventory for advertising credits
during 1998.
NOTE 9. 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 $1.1 million in 1996, $ 1.0
million in 1997 and $0.9 million in 1998.
NOTE 10. 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 1, 1997 January 31, 1998 February 6, 1999
------------------ ----------------- ----------------
(52 weeks) (52 weeks) (53 weeks)
(dollars in thousands)
<S> <C> <C> <C>
Initial franchise fee $ 6,680 $ 6,512 $ 7,887
================== ================= ================
Number of operating franchised stores:
Beginning of period 959 1,174 1,225
Sales to franchisees 294 282 368
Stores acquired/closed (79) (231) (171)
------------------ ----------------- ----------------
End of period 1,174 1,225 1,422
================== ================= ================
</TABLE>
NOTE 11. FINANCIAL INSTRUMENTS
At January 31, 1998 and February 6, 1999, the Company's financial
instruments consisted of bank debt, franchisee notes receivable, and related
party notes receivable. Based on the interest rates currently available and the
risk associated with the receivables, management believes that the fair values
of its financial instruments approximates their carrying values.
NOTE 12. LONG-TERM LEASE OBLIGATIONS
The Company has operating leases covering its retail store locations. The
leases generally provide for an initial term of between five 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 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>
Year Ended
-----------------------------------------------------------
February 1, 1997 January 31, 1998 February 6, 1999
------------------ ----------------- ----------------
(52 weeks) (52 weeks) (53 weeks)
(in thousands)
Retail Stores:
Rent on long-term operating leases, net of sublease income
<S> <C> <C> <C>
$ 70,234 $ 74,777 $ 90,163
Common operating expense 19,191 20,960 24,952
Percent rent 3,166 5,270 7,041
------------------ ----------------- ----------------
92,591 101,007 122,156
Other 9,598 11,522 13,930
------------------ ----------------- ----------------
$ 102,189 $ 112,529 $ 136,086
================== ================= ================
</TABLE>
Minimum future obligations for noncancellable operating leases with initial
or remaining terms of at least one year in effect at February 6, 1999 are as
follows:
<TABLE>
<CAPTION>
Company Retail Franchise Sublease income
Stores Retail Stores Other(a) Consolidated
---------------- --------------- --------------- --------------- ---------------
(in thousands)
<S> <C> <C> <C> <C> <C>
1999 $ 69,131 $ 22,070 $ 6,902 $ (22,070) $ 76,033
2000 63,984 20,564 6,222 (20,564) 70,206
2001 58,326 17,717 4,915 (17,717) 63,241
2002 49,770 14,335 4,070 (14,335) 53,840
2003 38,983 10,422 3,666 (10,422) 42,649
Thereafter 61,597 27,900 30,111 (27,900) 91,708
---------------- --------------- --------------- --------------- ---------------
$ 341,791 $ 113,008 $ 55,886 $ (113,008) $ 397,677
================ =============== =============== =============== ===============
</TABLE>
(a) Includes $42.7 million for a lease with the related party discussed in
Note 1.
NOTE 13. INCOME TAXES (TAX BENEFITS)
Significant components of the Company's deferred tax assets and liabilities
at period end consisted of the following:
<TABLE>
<CAPTION>
January 31, 1998 February 6, 1999
------------------ -------------------
(in thousands)
Deferred Tax:
Current assets:
<S> <C> <C>
Operating reserves $ 5,921 $ 9,695
Inventory capitalization 3,281 2,981
Deferred revenue 3,866 3,822
Deferred compensation 903 1,074
Other 219 45
------------------ -------------------
Total current assets 14,190 17,617
------------------ -------------------
Non-current liabilities
Option compensation (2,692) (2,466)
Fixed assets 8,249 11,093
Other (1,343) (856)
------------------ -------------------
Total non-current liabilities 4,214 7,771
------------------ -------------------
$ 9,976 $ 9,846
================== ===================
</TABLE>
Income taxes (tax benefits) for all periods consisted of the following
components:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------------------
February 1, 1997 January 31, 1998 February 6, 1999
------------------ ----------------- ----------------
(52 weeks) (52 weeks) (53 weeks)
(in thousands)
Current:
<S> <C> <C> <C>
Federal $ 45,992 $ 56,301 $ 52,213
State 3,890 4,553 4,127
Foreign (218) - -
------------------ ----------------- ----------------
49,664 60,854 56,340
------------------ ----------------- ----------------
Deferred:
Federal (10,346) 3,398 (98)
State (247) 628 315
Foreign - - (805)
------------------ ----------------- ----------------
(10,593) 4,026 (588)
------------------ ----------------- ----------------
Total $ 39,071 $ 64,880 $ 55,752
================== ================= ================
</TABLE>
The Company's effective tax rate differed from the statutory tax rate for
the following reasons:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------------------
February 1, 1997 January 31, 1998 February 6, 1999
------------------ ----------------- ----------------
Percent of pretax earnings:
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 35.0%
Increase:
Goodwill amortization 49.0% 1.5% 1.9%
State income tax, net of federal tax benefit 5.5% 2.0% 2.0%
Other 1.3% 0.1% -0.9%
------------------ ----------------- ----------------
Effective income tax rate 90.8% 38.6% 38.0%
================== ================= ================
</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 14. LEGAL PROCEEDINGS AND SETTLEMENTS
The Company and/or one of its subsidiaries (the "GNC Companies") are
currently named as defendants in approximately 7 lawsuits in state and federal
courts alleging damages arising from the ingestion of products containing
manufactured L-Tryptophan that were processed and distributed by the GNC
Companies and other non-related companies prior to 1990. These lawsuits are all
that remain of over 400 such actions against the GNC Companies and the Company
believes that like all that were resolved previously, the remaining cases will
be resolved at no cost to the Company. The cases are being vigorously defended
pursuant to a joint defense agreement (the "Agreement") among Showa Denko
America ("SDA") and numerous parties in the nutritional supplement industry who
manufactured, processed, sold, distributed or bottled L-Tryptophan. SDA's
parent, SHOWA Denko ("SDK"), was the manufacturer of the L-Tryptophan that
plaintiffs allege caused their injuries. Pursuant to the Agreement, SDA has
agreed to pay all legal fees incurred by the GNC Companies in the defense of
these claims and to indemnify the GNC Companies against liability.
By separate agreement, SDK has unconditionally and irrevocably guaranteed
all obligations of SDA under the Agreement. In addition, the GNC Companies, with
the other signatories to the Agreement, are beneficiaries of a $20 million
letter of credit delivered to secure SDA's performance of its obligations.
The Agreement does not indemnify the GNC Companies against injuries
proximately caused by them or against punitive, exemplary or other damages
attributable to their intentional misconduct. Several of the pending actions
seek such damages. The GNC Companies believe they have reasonable defenses to
such claims. The GNC Companies also believe that they are entitled to
indemnification or contribution from other parties to the pending actions but,
pursuant to the Agreement, are not pursuing those claims at this time.
In the unlikely event that the benefit of the Agreement, the guaranty by
SDK and letter of credit were to be unavailable, the GNC Companies have product
liability insurance which they believe provides coverage for the L-Tryptophan
product claims. The damages sought by the pending actions could exceed such
coverage in the unlikely event that damages were to be awarded solely against
the GNC Companies and no indemnification or contribution by other parties was
awarded or available. Although the outcome of litigation is uncertain,
management of the Company, upon consultation with counsel, believes that the
Company will not be required to make any material payments in connection with
the remaining actions, and no provisions have been made in the consolidated
financial statement for any such possible loss.
On June 24, 1996, a putative class action, Lavalla v. Lee et al, C.A. No.
15080, was commenced against the Company and two directors and shareholders in
the Court of Chancery of the State of Delaware, Newcastle County, alleging
violations of the federal securities laws arising out of the Prospectus and
Registration Statement (the "Prospectus") for a public offering of common stock
of the Company which took place on February 7, 1996 (the "Public Offering"). The
action was dismissed without prejudice on December 29, 1997 pursuant to the
parties' stipulation. The named plaintiff, Gaetan Lavalla, subsequently became a
named plaintiff in Klein et al v. General Nutrition Companies, Inc. et al, Civil
Action No. 96-1455, another putative class action filed on August 2, 1996, in
the United States District Court for the Western District of Pennsylvania. In
Klein, plaintiffs asserted that the Company is liable for violations of Sections
11 and 12(a) 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 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 alleged 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.
Defendants moved to dismiss the Complaint on December 2, 1996 and
plaintiffs subsequently filed an Amended Complaint dated March 21, 1997, which
among other things, added Gaetan Lavalla as a named plaintiff. On March 30,
1998, the Court granted the motions of all defendants to dismiss the Amended
Complaint with prejudice. On April 20, 1998, the plaintiffs filed a Notice of
Appeal with the United States Court of Appeals for the Third Circuit. The
Company disputes the allegations contained in the complaint and intends to
defend the action vigorously. The appeal has been fully briefed and was argued
on December 2, 1998. The appeal has not yet been decided.
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 $120 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 15. BUSINESS COMBINATIONS
In 1996, 1997 and 1998 the Company acquired 68, 222 and 263 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 $8.1 million,
$49.5 million and $47.6 million in 1996, 1997 and 1998, respectively, was
recognized in the consolidated financial statements.
NOTE 16. SEGMENT INFORMATION
GNC 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. It's segments are organized
by product on a worldwide basis. The Company's management reporting system
evaluates performance based on a number of factors; however, the primary measure
of performance is the after-tax operating profit of each segment. Accordingly,
the Company reports three worldwide segments: Retail, Franchising and
Manufacturing/Wholesale. All of the Company's products that do not fall into one
of these three segments are reported in the category entitled Corporate/Other.
The Retail segment generates revenue through the sale of proprietary branded and
third-party branded products through company-owned stores. The Franchising
segment generates revenue through the charge for initial franchise fee, the sale
of product at wholesale prices, a royalty on retail sales, and interest income
on amounts financed by the Company for the initial purchase of the store assets.
The Manufacturing/Wholesale segment is comprised of the Company's three
manufacturing facilities which are located in Greenville, South Carolina, the
United Kingdom, and Australia, with the Greenville location serving as the
primary facility. The facilities are primarily dedicated to the manufacture of
proprietary products, principally vitamin, mineral, herbal and sports nutrition
supplements which are sold at GNC stores. When not producing proprietary
products, the facilities manufacture products which are sold to various
third-party customers, allowing the facilities to generate revenue.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies.
The Company accounts for intersegment sales as if the transactions were to
third-parties, that is, at current market prices.
The following table represents key financial information of the Company's
business segments; Retail, Franchising, Manufacturing/Wholesale, and
Corporate/Other and should be read in conjunction with Part I, Item 1, Business.
<TABLE>
<CAPTION>
1996 1997 1998
-------------------- ------------------ -------------------
(52 weeks) (52 weeks) (53 weeks)
(in thousands)
Retail
<S> <C> <C> <C>
Net revenue $ 726,758 $ 868,794 $ 1,034,307
Operating earnings 18,816 127,362 103,001
Depreciation/amortization 33,924 37,649 48,888
Identifiable assets 584,979 656,207 791,650
Capital expenditures 59,699 44,017 79,864
Manufacturing/Wholesale
Intersegment sales $ 163,924 $ 203,041 $ 224,778
Third-party sales 75,791 95,514 136,337
Operating earnings 37,716 48,403 57,540
Depreciation/amortization 3,631 4,587 5,613
Identifiable assets 89,154 113,941 136,131
Capital expenditures 13,058 13,048 28,916
Franchising
Net revenue $ 188,296 $ 229,177 $ 247,102
Operating earnings 40,714 49,546 59,496
Depreciation/amortization 201 275 308
Identifiable assets 86,674 103,937 114,077
Capital expenditures 561 248 164
Corporate/Other
Operating expense $ (36,899) $ (34,140) $ (36,700)
Depreciation/amortization 2,777 1,494 3,040
Identifiable assets 18,548 59,853 86,128
Capital expenditures 1,942 9,664 8,883
Consolidated Totals
Net revenue $ 990,845 $ 1,193,485 $ 1,417,746
Operating earnings 60,347 191,171 183,337
Interest expense, net 17,341 22,926 36,608
Earnings before income taxes 43,006 168,245 146,729
Income taxes 39,071 64,880 55,752
Net earnings 3,935 103,365 90,977
Depreciation/amortization 40,533 44,005 57,849
Identifiable assets 779,355 933,938 1,127,986
Capital expenditures 75,260 66,977 117,827
</TABLE>
(a) Retail operating earnings includes expenses for amortization of
goodwill of $9.6 million in 1996, $9.5 million in 1997 and $12.2 million in
1998. Retail identifiable assets includes goodwill, net of accumulated
amortization, of $258.9 million in 1996, $297.4 million in 1997 and $332.9
million in 1998.
(b) 1996 operating earnings include $80.2 million of restructuring charges,
of which $79.5 million is recorded in Retail, $497,000 in
Manufacturing/Wholesale, and $280,000 in Corporate/Other.
(c) Included in Corporate/Other operating expenses in 1996, 1997 and 1998
is $11.8 million, $4.1 million and $0.3 million, respectively, of non-cash
compensation expense charges.
(d) Included in Corporate/Other operating expenses in 1996 is $1.6 million
of severance charges.
(e) Retail operating earnings includes expenses for asset dispositions and
DSHEA relabeling costs totaling $9.3 million in 1998.
(f) For all years presented, segment amounts, when aggregated, agree to the
Company's consolidated totals with the exception of Capital Expenditures, which
differ in each year presented due to the portion of the purchase price of
franchise store acquisitions which is allocated to property, plant, and
equipment. Intersegment sales from Manufacturing /Wholesale are eliminated in
consolidation of Net Revenues
The following table represents the geographic information for the Company's
business segments; Retail, Franchising, Manufacturing/Wholesale, and
Corporate/Other.
<TABLE>
<CAPTION>
1996 1997 1998
-------------------- ------------------ -------------------
(52 weeks) (52 weeks) (53 weeks)
(in thousands)
Revenues, based on location of customer:
<S> <C> <C> <C>
United States $ 959,943 $ 1,147,058 $ 1,351,259
Foreign Countries 30,902 46,427 66,487
-------------------- ------------------ -------------------
Total $ 990,845 $ 1,193,485 $ 1,417,746
Long-Lived Assets:
United States $ 168,212 $ 197,920 $ 261,151
Foreign Countries 7,140 10,055 14,322
-------------------- ------------------ -------------------
Total $ 175,352 $ 207,975 $ 275,473
</TABLE>
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 1996, 1997 and 1998 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 1, 1997 January 31, 1998 February 6, 1999
----------------- ---------------- ----------------
<S> <C> <C> <C>
Net income As reported $ 3,935 $ 103,365 $ 90,977
Pro forma (11,528) 92,043 89,103
Basic earnings per share As reported $ 0.05 $ 1.27 $ 1.21
Pro forma (0.14) 1.13 1.19
Diluted earnings per share As reported $ 0.05 $ 1.24 $ 1.18
Pro forma (0.14) 1.11 1.16
</TABLE>
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 1, 1997, January 31, 1998 and
February 6, 1999 : expected volatility of 53% in 1996, 52% in 1997 and 56% in
1998; no dividend yield in any of the years; expected life in years from 1 to
6 years in 1996, 1 to 5 years in 1997 and 1 to 6 years in 1998; and risk-free
interest rates of 6% in 1996, 5.5% in 1997 and 4.3% in 1998.
The Company recorded compensation expense of $7.5 million, $4.1 million and
$0.3 million related to its fixed and performance-based stock option plans for
years ended February 1, 1997, January 31, 1998 and February 6, 1999,
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 eight fixed stock option plans covering officers and key
employees, and non-employee directors. A summary of each plan at February 6,
1999 is as follows:
<TABLE>
<CAPTION>
Shares Maximum Range of Exercise Shares
Authorized Life Prices Outstanding Vesting Provisions
---------------- -------------- ----------------- -------------- ----------------------
(in thousands) (in thousands)
Employee Plans:
<S> <C> <C> <C> <C> <C> <C> <C>
1989 2,173 10 $1.25 - $2.50 36 5 years, 20% per year
1991 1,600 10 1.25 102 6 years, 16.66% per year
1992 400 10 6.53 - 17.50 241 5 years, 20% per year
1993 1,600 10 10.84 - 17.50 365 4 years, daily basis
1995 2,000 10 11.06 - 19.50 1,103 4 years, daily basis
1996 2,500 10 11.06 - 32.14 2,242 4 years, daily basis
1998 1,250 10 11.06 - 34.63 497 4 years, daily basis
Non-Employee Plans:
1994 - directors 100 10 11.47 - 22.75 100 4 years, 25% per year
</TABLE>
A summary of the status of the Company's fixed stock option plans for the
years ended February 1, 1997, January 31, 1998 and February 6, 1999 is as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------------------------- ----------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Fixed Stock Options Shares Exercise Shares Exercise Shares Exercise
Price Per Price Per Price Per
Share Share Share
- -------------------------------- -------- --------------- --------- --------------- -------- ---------------
(in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 4,774 $ 9.30 5,745 $ 11.71 4,812 $ 16.39
Granted 1,715 16.36 1,050 27.89 797 15.82
Exercised (743) 6.05 (1,921) 8.79 (596) 11.46
Forfeited (1) 2.50 (62) 14.27 (327) 22.54
--------
========= ========
Outstanding at end of year 5,745 $ 11.71 4,812 $ 16.39 4,686 $ 14.50
======== =============== ========= =============== ======== =============
Options exercisable at year end 3,840 $ 9.99 2,718 $ 12.54 2,899 $ 13.37
======== =============== ========= =============== ======== =============
Weighted average fair value of
options granted during the year:
Exercise price = Grant date
fair value $ 8.17 $ 27.55 $
-
Exercise price > Grant date
fair value $ 10.42 $ - $ 17.50
Exercise price > Grant date
fair value $ 8.81 $ - $ 12.53
</TABLE>
The following table summarizes information regarding the Company's fixed
stock options outstanding at February 6, 1999:
<TABLE>
<CAPTION>
Outstanding Options Options Exercisable
---------------------------------------------------------- --------------------------------------
Weighted
Average Weighted Average Weighted Average
Range of Number Remaining Exercise Number Exercise Price
Exercise Price Outstanding Contractual Life Price Per Exercisable Per Share
Share
- --------------------- ---------------- ---------------- ----------------- ----------------- -----------------
(in thousands) ( in years) (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
$1.25 - $10.84 633 4.32 $ 8.62 622 $ 8.60
11.06 - 11.47 233 9.21 11.11 41 11.30
11.88 885 6.06 11.88 885 11.88
12.50 - 15.00 74 5.83 13.77 62 13.62
15.50 950 7.54 15.50 561 15.50
16.88 45 7.92 16.88 23 16.88
17.50 1,834 8.51 17.50 683 17.50
18.60 - 26.78 28 7.33 22.80 18 22.82
32.14 1 8.77 32.14 1 32.14
34.63 3 8.96 34.63 3 34.63
================ =================
$1.25 - $34.63 4,686 7.27 $ 14.50 2,899 $ 13.37
================ =================
</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 Authorized Maximum Option Range of Exercise Shares
Plan Life Prices Outstanding
----------------------------- ----------------- ----------------- --------------------- ----------------
(in thousands) (in years) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
1996 2,500 10 $11.06 - $32.14 2,192
1998 1,250 10 11.06 - 17.50 494
</TABLE>
A summary of the status of the Company's performance-based stock option
plans as of February 6, 1999 is presented below:
<TABLE>
<CAPTION>
1996 1997 1998
---------------------------- ----------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Performance-based Options Shares Exercise Shares Exercise Shares Exercise
Price Per Price Per Price Per
Share Share Share
- -------------------------------- -------- --------------- --------- --------------- -------- ---------------
(in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of year - $ - 1,616 $ 16.28 2,332 $ 20.75
Granted 1,616 16.28 957 27.24 741 15.81
Exercised - - (116) 16.17 (108) 17.33
Forfeited - - (125) 16.81 (279) 23.08
--------
========= ========
Outstanding at end of year 1,616 $ 16.28 2,332 $ 20.75 2,686 $ 16.39
======== =============== ========= =============== ======== ===============
Weighted average fair value of
options granted during the year:
Exercise price = Grant date
fair value $ - $ - $ -
Exercise price > Grant date
fair value $ 10.74 $ 32.14 $ 11.64
Exercise price > Grant date
fair value $ 9.84 $ - $ 17.50
</TABLE>
The following table summarizes information regarding the Company's
performance-based stock options outstanding as February 6, 1999:
<TABLE>
<CAPTION>
Outstanding Options Options Exercisable
---------------------------------------------------------- --------------------------------------
Weighted Average
Remaining Weighted Average Weighted Average
Range of Number Contractual Life Exercise Price Number Exercise Price
Exercise Price Outstanding Per Share Exercisable Per Share
- --------------------- ---------------- ---------------- ----------------- ----------------- -----------------
(in thousands) ( in years) (in thousands)
<S> <C> <C> <C> <C> <C>
$ 11.06 195 9.65 $ 11.06 - $ 0.00
15.50 869 7.54 15.50 393 15.50
16.88 44 7.92 16.88 20 16.88
17.50 1,573 8.55 17.50 371 17.50
22.32 2 8.23 22.32 2 22.32
26.78 1 8.38 26.78 1 26.78
32.14 2 8.77 32.14 2 32.14
================ =================
$11.06 - $32.14 2,686 8.29 $ 16.39 789 $ 16.54
================ =================
</TABLE>
The Company has awarded 1.0 million options pursuant to a new 1998
Management and Director Stock Option Plan (the "1998 Plan"), under which 2.5
million options have been reserved. The terms of the 1998 Plan are essentially
the same as the 1996 Stock Option Plan. There are a total of 2.5 million options
reserved for issuance. The remaining 1.5 million options can only be granted if
the Company's future share price exceeds certain minimum targets. These 1.0
million options were granted with an exercise price of $34.625 per share, which
equaled the fair market value on the date of grant. If at the date of
shareholder approval the market value of the Company's stock is greater than
$34.625, the Company will be required to record a charge against earnings for
the amount of the difference.
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 and Director 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 participants are permitted to purchase under
the Plan is 2.5 times their annual compensation or director fees. Non-officer
participants may participate to 1.25 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 1.25
times 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 6, 1999, 839,987 shares were purchased
under the Stock Purchase Plan for approximately $12.8 million, 80% of the
average market price of the common stock. At January 31, 1998 and February 6,
1999, outstanding Company loans made in connection with the plan were
$3.76 million and $4.0 million, respectively. The Company recorded $4.1 million
and $0.3 million in compensation expense for the years ended January 31, 1998
and February 6, 1999, respectively, in connection with the discount from the
market price of the common stock and with the forgiveness of loans.
During 1998 the Company approved the resetting of the strike prices on all
options issued from the 1992, 1993, 1995, 1996 and 1998 option plans for current
active employees. The new strike was set at $17.50 for all shares that had
strike prices in excess of $17.50. Options under the 1996 and 1998 Stock Option
Plans that vested based on stock price appreciation hurdles had the remaining
vesting schedule restarted with the revised stock price hurdles.
NOTE 18. EARNINGS PER SHARE
The earnings per share calculations for all periods are as follows:
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------
February 1, 1997 January 31, 1998 February 6, 1999
--------------- ---------------- ---------------
(52 weeks) (52 weeks) (53 weeks)
(in thousands, except per share data)
<S> <C> <C> <C>
Net earnings available for common shares $ 3,935 $ 103,365 $ 90,977
=============== ================ ===============
Basic weighted average common shares outstanding 84,907 81,140 75,302
Basic earnings per share $ 0.05 $ 1.27 $ 1.21
=============== ================ ===============
Net earnings available for common shares $ 3,935 $ 103,365 $ 90,977
Basic weighted average common shares outstanding 84,907 81,140 75,302
Shares issuable from assumed conversion of dilutive stock
options 1,387 2,087 1,495
---------------
================ ===============
Diluted weighted average common shares 86,294 83,227 76,797
=============== ================ ===============
Diluted earnings per share $ 0.05 $ 1.24 $ 1.18
=============== ================ ===============
</TABLE>
There were no options or other equity instruments outstanding during the
years ended February 1, 1997, January 31, 1998 and February 6, 1999, that were
excluded from the diluted earnings per share calculations.
NOTE 19. SUBSEQUENT EVENT
As part of the Company's strategy to re-focus on its core business, on
April 22, 1999, the Company executed a definitive agreement to sell its Nature's
fresh Northwest gourmet grocery store chain to Wild Oats Markets, Inc. The
Company expects to complete this transaction during the second quarter of 1999,
and will reflect such transaction in the Company's second quarter results.
NOTE 20. QUARTERLY FINANCIAL DATA
Unaudited quarterly financial information is as follows:
<TABLE>
<CAPTION>
Quarter Ended Year Ended
-------------------------------------------------------------------------
April 25, 1998 July 18, 1998 October 10, 1998 February 6, 1999 February 6, 1999
1998 (a)
--------------- --------------- --------------- --------------- ------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenue $ 327,617 $ 327,949 $ 304,652 $ 457,528 $ 1,417,746
Gross profit 131,765 126,404 113,720 149,318 521,207
Net earnings 30,238 27,983 17,955 14,801 90,977
Basic earnings per share
$ 0.37 $ 0.34 $ 0.25 $ 0.22 $ 1.21
Diluted earnings per share
$ 0.36 $ 0.34 $ 0.25 $ 0.22 $ 1.18
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended Year Ended
-------------------------------------------------------------------------
April 26, 1997 July 19, 1997 October 11, 1997 January 31, 1998 January 31, 1998
1997 (a)
--------------- --------------- --------------- --------------- ------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenue $ 273,059 $ 265,604 $ 277,970 $ 376,852 $ 1,193,485
Gross profit 106,679 104,109 107,345 149,336 467,469
Net earnings 23,859 23,054 23,932 32,520 103,365
Basic earnings per share
$ 0.29 $ 0.29 $ 0.29 $ 0.40 $ 1.27
Diluted earnings per share
$ 0.29 $ 0.28 $ 0.29 $ 0.39 $ 1.24
</TABLE>
(a) Each of the Company's first 3 quarters consists of 12 week operating
results. The fourth quarter consists of 16 weeks in 1997 and 17 weeks in 1998.
(b) Quarterly figures may not total year-end numbers due to rounding.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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 24, 1999 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 24, 1999, 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>
Jerry D. Horn 61 Chairman of the Board and Director
William E. Watts 46 Chief Executive Officer, and Director
Edwin J. Kozlowski 50 Executive Vice President of Administration and Chief Financial Officer
Gregory T. Horn 33 Chief Operating Officer and Executive Vice President of Business Development
Michael K. Meyers 39 Executive Vice President and General Manager of General Nutrition Corporation
John A. DiCecco 46 Senior Vice President - Logistics-/Manufacturing/Wholesale of
GNI
James M. Sander 42 Vice President - Law, Chief Legal Officer and Secretary
David R. Heilman 46 Vice President - Strategic Planning & Corp. Development
Curtis J. Larrimer 43 Vice President - Controller
Eileen D. Scott 46 Vice President - Human Resources
Joseph Fortunato 46 Senior Vice President - Store Development
J. Kenneth Fox 48 Vice President - Treasurer
Thomas R. Shepherd 69 Director
W. Harrison Wellford 59 Director
Ronald L. Rossetti 55 Director
David Lucas 51 Director
Edward G. Beimfohr 66 Director
</TABLE>
Mr. Jerry Horn has served as Chairman of the Board of GNCI and GNC 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., Pam Am Int. Flight Academy Inc., Universal
Hospital Services Inc. and Chevys 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. Watts is also a director of C T Farm + Country, Inc.
Mr. Kozlowski became Executive Vice President of Administration in
September 1998 and served as 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 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. Gregory Horn became Chief Operating Officer and Executive Vice
President of Business Development in September 1998 and had previously served as
Chief Marketing Officer since January 1997 and 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.
Horn is also a director of Jillian's Entertainment, Sweetwater Flatbread Co.,
Inc., Beyond Massage, Inc. and Sewickley Development, Inc.
Mr. Meyers became Executive Vice President and General Manager in September
1998. Mr. Meyers began his employment with GNI in 1981 as a store manager in
Florida and has held various positions of increasing responsibility within the
Company, including regional manager, divisional merchandising head and
divisional vice president.
Mr. DiCecco became Senior Vice President of
Logistics/Manufacturing/Wholesale 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. 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. 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/Wholesale and
Retail divisions and Assistant Corporate Controller.
Mrs. Scott became Vice President of Human Resources in May 1996. Mrs. Scott
began her employment in August 1988 and has held various positions of increasing
responsibility within the Company, including Assistant Director and Director of
Human Resources.
Mr. Fortunato became Senior Vice President-Store Development in September
1998 and previously served as Vice President-Financial Operations from November
1997 to August 1998. Mr. Fortunato began his employment with GNI in October 1990
and has held various positions of increasing responsibility within the Company,
including Director of Financial Operations and Manager of the Credit Department.
Prior to 1990, Mr. Fortunato served as the Controller for Motor Coils
Manufacturing Company.
Mr. Fox became Vice President-Treasurer of the Company in June 1997. Mr.
Fox began his employment with GNI as Manager of Corporate Accounting in July
1985, and has served in various Accounting and Finance positions including
Manager Accounting/Budgets, Assistant Corporate Controller and Assistant
Treasurer. Prior to 1985 Mr. Fox was employed by Wheeling Pittsburgh Steel
Corporation, holding various accounting and budgeting positions.
Mr. Shepherd has served as a director of the Company since October 1991 and
as a director of GNI since October 1989. He is chairman of The Shepherd Group
and 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 the
firm's International Chairman. He is a Director of Sithe Energies, (one of the
world's leading independent power companies), and is a Founder of the National
Independent Energy Producers. He is director and treasurer of the Friends of Art
in Embassies. Mr. Wellford was a partner at the law firm of Olwine, Chase,
O'Donnell & Weyher, and a director of APBI Interactive Systems 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 President's Reorganization Project and Executive
Associate Director of the Office of Management and Budget in the Executive
Director of the from 1977 to 1981. Mr. Wellford also served as a White House
transition advisor to Presidents-elect Carter (1992) and Clinton (1992) and
Executive Branch transition director in the Carter - Reagan Presidential
transition (1980-1981).
Mr. Rossetti has served as a director of the Company and of GNI since
September 1994. He is currently President of Riverside Capital Partners, Inc.,
Director of Tier Corporation, Inc., Director of City Sports, Inc., and Director
of the Hamilton Companies, Inc. From 1976 through September 1994, Mr. Rossetti
was President, Chief Executive Officer and a director of Natures 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.
Mr. Beimfohr has served as a director of the Company and GNI since January
1999. He is a Senior Partner with Lane & Mittendorf Attorneys, New York, NY. Mr.
Beimfohr received an A.B. from Washington University in 1953.
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 24, 1999.
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 24, 1999.
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 24, 1999.
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 January 31, 1998 and
February 6, 1999
Consolidated Statements of Earnings and Comprehensive Income for years
ended February 1, 1997, January 31, 1998 and February 6, 1999
Consolidated Statements of Shareholders' Equity for years ended February 1,
1997, January 31, 1998 and February 6, 1999
Consolidated Statements of Cash Flows for years ended February 1, 1997,
January 31, 1998 and February 6, 1999
Notes to Consolidated Financial Statements
Supplementary Financial Data:
Selected Quarterly Financial Data (unaudited) for the fiscal years ended
January 31, 1998 and February 6, 1999
Schedule II - Valuation and Qualifying Accounts
All Other 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
Exhibit
Number
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.)
10.1 Amended and Restated Employment Agreement between General Nutrition,
Incorporated and Jerry D. Horn.
10.2 Amended and Restated Employment Agreement between General Nutrition,
Incorporated and William E. Watts.
Exhibit
Number
10.3 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. (Incorporated herein by reference to Exhibit
10.18 to the Annual Report on Form 10-K of General Nutrition
Companies, Inc. for the fiscal year ended February 1, 1997.)
10.4 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.)
10.5 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.)
10.6 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.)
10.7 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.)
10.8 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.)
10.9 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.)
10.10 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.)
10.11 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.)
10.12 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.)
10.13 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.)
10.14 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.)
10.15 Amendment Number 1 to the Amended and Restated Employment Agreement
between General Nutrition, Incorporated and Jerry D. Horn.
10.16 Amendment Number 1 to the Amended and Restated Employment Agreement
between General Nutrition, Incorporated and William E. Watts.
*10.17 Form of General Nutrition Companies, Inc. 1998 Management and Director
Stock Option Plan.
Exhibit
Number
*10.18 U.S. $100,000,000 1998 Term Credit Agreement dated as of August
10, 1998 among General Nutrition, Incorporated and General
Nutrition Corporation, as Borrowers, and General Nutrition
Companies, Inc. and the Lenders named therein, as Lenders, and Banque
Nationale de Paris, as Administrative Agent and as Documentation Agent
and PNC Bank, National Association and ABN Amro Bank N.V. as
Syndication Agents.
*10.19 Amendment No. 1 to the $100,000,000 1998 Term Credit Agreement dated as
of December 16, 1998.
*21.1 Subsidiaries of General Nutrition Companies, Inc.
*23 Consent of Deloitte & Touche LLP.
*27 Financial Data Schedule.
* Filed herewith.
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 7, 1999
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>
/s/ JERRY D. HORN Chairman of the Board May 7, 1999
- --------------------------------------
Jerry D. Horn
/s/ WILLIAM E. WATTS Director, President and Chief Executive Officer May 7, 1999
- --------------------------------------
William E. Watts
/s/ DAVID LUCAS Director May 7, 1999
- --------------------------------------
David Lucas
/s/ RONALD L. ROSSETTI Director May 7, 1999
- --------------------------------------
Ronald L. Rossetti
/s/ THOMAS R. SHEPHERD Director May 7, 1999
- --------------------------------------
Thomas R. Shepherd
/s/ W. HARRISON WELLFORD Director May 7, 1999
- --------------------------------------
W. Harrison Wellford
/s/ EDWARD G. BEINFOHR Director May 7, 1999
- --------------------------------------
Edward G. Beinfohr
/s/ EDWIN J. KOZLOWSKI Executive Vice President, Chief Financial May 7, 1999
- --------------------------------------
Edwin J. Kozlowski Officer, and Principal Accounting Officer
</TABLE>
GENERAL NUTRITION COMPANIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED FEBRUARY 6, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997
<TABLE>
<CAPTION>
Additions
-----------------------------------
Balance at the Charged to Costs Balance at the
Beginning of the and Expenses Charged to End of the Period
Classification Period Other Accounts Deductions
- --------------------------- ----------------- ---------------- --------------- -------------- ----------------
Allowance for Doubtful Accounts:
Year Ended February 6,
<S> <C> <C> <C> <C>
1999 $ (1,816) $ (173) $ - $ 25 $ (1,964)
Year Ended January 31,
1998 (1,883) (219) - 286 (1,816)
Year Ended February 1,
1997 (2,521) (280) - 918 (1,883)
Inventory Shrink Reserve:
Year Ended February 6,
1999 (4,112) (11,970) - 11,676 (4,406)
Year Ended January 31,
1998 (7,875) (10,023) - 13,786 (4,112)
Year Ended February 1,
1997 (3,551) (9,765) - 5,441 (7,875)
Inventory Obsolete Inventory
Reserve:
Year Ended February 6,
1999 (2,555) - - 46 (2,509)
Year Ended January 31,
1998 (3,059) - - 504 (2,555)
Year Ended February 1,
1997 (1,791) (1,268) - - (3,059)
</TABLE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of General Nutrition Companies, Inc.:
We have audited the consilidated financial statements of General Nutrition
Companies, Inc. as of February 6, 1999 and January 31, 1998 and for each of the
years ended February 6, 1999, January 31, 1998 and February 1, 1997, and have
issued our report thereon dated March 3, 1999 (April 22, 1999 as to Note 19);
such report is included elsewhere in this Form 10-K. Our audits also included
the consolidated financial statement schedule of General Nutrition Companies,
Inc., listed in Item 14. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidation
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
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 7, 1999
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>
/s/ JERRY D. HORN Chairman of the Board May 7, 1999
- --------------------------------------
Jerry D. Horn
/s/ WILLIAM E. WATTS Director, President and Chief Executive Officer May 7, 1999
- --------------------------------------
William E. Watts
/s/ DAVID LUCAS Director May 7, 1999
- --------------------------------------
David Lucas
/s/ RONALD L. ROSSETTI Director May 7, 1999
- --------------------------------------
Ronald L. Rossetti
/s/ THOMAS R. SHEPHERD Director May 7, 1999
- --------------------------------------
Thomas R. Shepherd
/s/ W. HARRISON WELLFORD Director May 7, 1999
- --------------------------------------
W. Harrison Wellford
/s/ EDWARD G. BEINFOHR Director May 7, 1999
- --------------------------------------
Edward G. Beinfohr
/s/ EDWIN J. KOZLOWSKI Executive Vice President, Chief Financial May 7, 1999
- --------------------------------------
Edwin J. Kozlowski Officer, and Principal Accounting Officer
</TABLE>
GENERAL NUTRITION COMPANIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED FEBRUARY 6, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997
<TABLE>
<CAPTION>
Additions
-----------------------------------
Balance at the Charged to Costs Balance at the
Beginning of the and Expenses Charged to End of the Period
Classification Period Other Accounts Deductions
- --------------------------- ----------------- ---------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year Ended February 6,
1999 $ (1,816) (173) - 25 $ (1,964)
Year Ended January 31,
1998 (1,883) (219) - 286 (1,816)
Year Ended February1,
1997 (2,521) (280) - 918 (1,883)
Inventory Shrink Reserve:
Year Ended February 6,
1999 (4,112) (11,970) - 11,676 (4,406)
Year Ended January 31,
1998 (7,875) (10,023) - 13,786 (4,112)
Year Ended February1,
1997 (3,551) (9,765) - 5,441 (7,875)
Inventory Obsolete
Reserve:
Year Ended February 6,
1999 (2,555) - - 46 (2,509)
Year Ended January 31,
1998 (3,059) - - 504 (2,555)
Year Ended February1,
1997 (1,791) (1,268) - - (3,059)
</TABLE>
1998 MANAGEMENT AND DIRECTOR
STOCK OPTION PLAN
GENERAL NUTRITION COMPANIES, INC.
1. Purpose of the Plan.
This stock option plan (the "Plan") is intended to encourage ownership of
the stock of General Nutrition Companies, Inc. (the "Company") by officers and
key employees of the Company and its subsidiaries, and directors of the Company,
to induce qualified personnel to enter and remain in the employ of the Company
or its subsidiaries and otherwise to provide additional incentive for optionees
to promote the success of its business.
2. Stock Subject to the Plan.
(a) The total number of shares of the authorized but unissued or Treasury
shares of the common stock, $.01 par value, of the Company ("Common Stock") for
which options may be granted under the Plan shall not exceed Two Million Five
Hundred Thousand (2,500,000) shares, subject to adjustment as provided in
Section 12 hereof.
(b) Of the total number of shares for which options may be granted under
the Plan, 1,000,000 shares are initially available for grant hereunder and
1,500,000 will become available for grant hereunder if the market price per
share of the Company's Common Stock reaches the following levels on or prior to
January 23, 2004:
Market Price Additional Share Becoming
Per Share Available for Grant
$41.55 500,000
$49.86 500,000
$59.83 500,000
TOTAL: 1,500,000
(c) If an option granted or assumed hereunder shall expire or terminate for
any reason without having been exercised in full, the unpurchased shares subject
thereto shall again be available for subsequent option grants under the Plan.
(d) Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors.
3. Administration of the Plan.
The Plan shall be administered by the Board of Directors or by a committee
(the "Committee") consisting of two or more members of the Company's Board of
Directors, to whom the Board may (except as provided in Section 5 hereof)
delegate its authority hereunder. The decision of the Board or of the Committee
as to all questions of interpretation and application of the Plan shall be
final, binding and conclusive on all persons. The Board or the Committee shall
have the authority to adopt, amend and rescind such rules and regulations as, in
its opinion, may be advisable in the administration of the Plan. The Board or
the Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option agreement granted hereunder in the
manner and to the extent it shall deem expedient to carry the Plan into effect
and shall be the sole and final judge of such expediency. No Board or Committee
member shall be liable for any action or determination made in good faith.
If any such Committee is appointed, the Board may from time to time appoint
a member or members of the Committee in substitution for or in addition to the
member or members then in office and may fill vacancies on the Committee however
caused. The Committee shall choose one of its members as Chairman and shall hold
meetings at such times and places as it shall deem advisable. A majority of the
members of the Committee shall constitute a quorum and any action may be taken
by a majority of those present and voting at any meeting. Any action may also be
taken without the necessity of a meeting by a written instrument signed by a
majority of the Committee.
4. Type of Options.
Options granted pursuant to the Plan shall be authorized by action of the
Board or the Committee and may be designated in the sole discretion of the Board
or the Committee as either incentive stock options meeting the requirements of
Section 422 of the Code or non-qualified options which are not intended to meet
the requirements of Section 422 of the Code. Options designated as incentive
stock options that fail to continue to meet the requirements of Section 422 of
the Code shall be redesignated as non-qualified options automatically without
further action by the Board or the Committee on the date of such failure to
continue to meet the requirements of Section 422 of the Code.
5. Eligibility.
Options designated as incentive stock options may be granted only to
officers and key employees of the Company or of any subsidiary corporation
(herein called "subsidiary" or "subsidiaries"), as defined in Section 424 of the
Code and the Treasury Regulations promulgated thereunder (the "Regulations").
Options designated as non-qualified options may be granted to directors of the
Company and officers and key employees of the Company or of any of its
subsidiaries.
Option grants to directors who are not otherwise employees of the Company
or a subsidiary shall be made by the Board of Directors.
In determining the eligibility of an individual to be granted an option, as
well as in determining the number of shares to be optioned to any individual,
the Committee shall take into account the position and responsibilities of the
individual being considered, the nature and value to the Company or its
subsidiaries of his or her service and accomplishments, his or her present and
potential contribution to the success of the Company or its subsidiaries, and
such other factors as the Committee may deem relevant.
No option designated as an incentive stock option shall be granted to any
optionee of the Company or any subsidiary if such optionee owns, immediately
prior to the grant of an option, stock representing more than 10% of the voting
power or more than 10% of the value of all classes of stock of the Company or a
parent or a subsidiary, unless the purchase price for the stock under such
option shall be at least 110% of its fair market value at the time such option
is granted and the option, by its terms, shall not be exercisable more than five
years from the date it is granted. In determining the stock ownership under this
paragraph, the provisions of Section 424(d) of the Code shall be controlling. In
determining the fair market value under this paragraph, the provisions of
Section 7 hereof shall apply. The maximum number of shares of Common Stock with
respect to which an option or options may be granted to any optionee in any one
taxable year of the Company shall not exceed 150,000 shares of Common Stock,
taking into account shares which were the subject of options granted during such
taxable year and subsequently terminated or repriced.
6. Option Grants; Option Agreement.
Of the 1,000,000 shares initially available for the grant of options
hereunder, 500,000 shall be available for grant at exercise prices determined by
the Board or the Committee, which prices shall not be less than the fair market
value of the Company's Common Stock at the time of grant. Such options shall
vest on a daily basis over the four years commencing on the date of grant.
The remaining 500,000 shares initially available for grant hereunder shall
be granted at exercise prices determined by the Board or the Committee, which
prices shall not be less than the fair market value of the Company's Common
Stock at the time of grant. Such options shall vest at the rate of 25% per year
over the 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. Such appreciation must equal or
exceed 20% in each year commencing with the date of grant of each option.
Notwithstanding any such appreciation, except as set forth in the following
sentence, no more than 25% of the shares available for issuance under such
option shall 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 the six
year period commencing on the date of grant.
Options with respect to the additional 1,500,000 shares which may become
available for grant hereunder pursuant to Section 2(b) hereof shall be granted
at exercise prices equal to the price per share which was required in order to
make such shares available for grant under such Section 2(b). Options for the
purchase of 50% of the shares which become available for amount for grant
pursuant to Section 2(b) hereof shall vest on a daily basis over the four year
period commencing on the date of grant. Options for the purchase of the
remaining 50% of such shares shall vest at the rate of 25% per year over the
four year period commencing on the date of grant if the market price per share
of the Company's Common Stock appreciates at the rate of 20% or more in each
year of such four year period. In the event that the required level of stock
appreciation is not met in a given year, the shares which fail to vest in that
year may vest in a subsequent year if the level of stock appreciation which was
not met is achieved in a subsequent year within the six year period commencing
on the date of grant.
Notwithstanding the foregoing, 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 six year period commencing on the date of
grant, such option shall be exercisable for a 30-day period commencing with the
close of such six year period and thereafter shall terminate to the extent not
exercised.
Each option shall be evidenced by an option agreement (the "Agreement")
duly executed on behalf of the Company and by the optionee to whom such option
is granted, which Agreement shall comply with and be subject to the terms and
conditions of the Plan. The Agreement may contain such other terms, provisions
and conditions which are not inconsistent with the Plan as may be determined by
the Committee, provided that options designated as incentive stock options shall
meet all of the conditions for incentive stock options as defined in Section 422
of the Code. No option shall be granted within the meaning of the Plan and no
purported grant of any option shall be effective until the Agreement shall have
been duly executed on behalf of the Company and the optionee. More than one
option may be granted to an individual.
7. Option Price.
The option price or prices of shares of the Company's Common Stock for
options designated as non-qualified stock options shall be as determined by the
Board or the Committee, but, except as provided in Section 6 above, in no event
less than the fair market value of such Common Stock at the time the option is
granted. The option price or prices of shares of the Company's Common Stock for
incentive stock options shall be the fair market value of such Common Stock at
the time the option is granted as determined by the Board or the Committee in
accordance with the Regulations promulgated under Section 422 of the Code.
If such shares are then listed on any national securities exchange, the
fair market value shall be the mean between the high and low sales prices, if
any, on the largest such exchange on the business day immediately preceding the
date of the grant of the option or, if none, shall be determined by taking a
weighted average of the means between the highest and lowest sales prices on the
nearest date before and the nearest date after the date of grant in accordance
with Treasury Regulations Section 25.2512-2. If the shares are not then listed
on any such exchange, the fair market value of such shares shall be the mean
between the high and low sales prices, if any, as reported in the National
Association of Securities Dealers Automated Quotation System National Market
System ("NASDAQ/NMS") for the business day immediately preceding the date of the
grant of the option, or, if none, shall be determined by taking a weighted
average of the means between the highest and lowest sales on the nearest date
before and the nearest date after the date of grant in accordance with Treasury
Regulations Section 25.2512-2. If the shares are not then either listed on any
such exchange or quoted in NASDAQ/NMS, the fair market value shall be the mean
between the average of the "Bid" and the average of the "Ask" prices, if any, as
reported in the National Daily Quotation Service for the business day
immediately preceding the date of the grant of the option, or, if none, shall be
determined by taking a weighted average of the means between the highest and
lowest sales prices on the nearest date before and the nearest date after the
date of grant in accordance with Treasury Regulations Section 25.2512-2. If the
fair market value cannot be determined under the preceding three sentences, it
shall be determined in good faith by the Board or the Committee.
8. Manner of Payment; Manner of Exercise.
(a) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such options, (ii) shares of
Common Stock of the Company owned by the optionee having a fair market value
equal in amount to the exercise price. Delivery of shares of Common Stock of the
Company owned by such optionee may be made only if such payment does not result
in a charge to earnings for financial accounting purposes as determined by the
Board or the Committee. The fair market value of any shares of the Company's
Common Stock which may be delivered upon exercise of an option shall be
determined by the Board or the Committee in accordance with Section 7 hereof.
(b) To the extent that the right to purchase shares under an option has
accrued and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full
for such shares as provided in subparagraph (a) above. Upon such exercise,
delivery of a certificate for paid-up non-assessable shares shall be made at the
principal office of the Company to the person or persons exercising the option
at such time, during ordinary business hours, after five (5) but not more than
thirty (30) days from the date of receipt of the notice by the Company, as shall
be designated in such notice, or at such time, place and manner as may be agreed
upon by the Company and the person or persons exercising the option.
9. Exercise of Options.
Each option granted under the Plan shall, subject to Section 10(b) and
Section 12 hereof, be exercisable at such time or times and during such period
as shall be set forth in the Agreement; provided, however, that no option
granted under the Plan shall have a term in excess of ten (10) years from the
date of grant.
To the extent that an option to purchase shares is not exercised by an
optionee when it becomes initially exercisable, it shall not expire but shall be
carried forward and shall be exercisable, on a cumulative basis, until the
expiration of the exercise period. No partial exercise may be made for less than
ten (10) full shares of Common Stock.
10. Term of Options; Exercisability.
(a) Term.
(1) Each option shall expire not more than ten (10) years from the date of
the granting thereof, but shall be subject to earlier termination as herein
provided.
(2) Except as otherwise provided in this Section 10, an option granted to
any employee optionee who ceases to be an employee of the Company or one of its
subsidiaries shall terminate (i) on the later of the last day of the third month
after the date such optionee ceases to be an employee of the Company or one of
its subsidiaries or the third business day after the Plan is approved by the
Stockholders under Section 19 hereof or (ii) on the date on which the option
expires by its terms, whichever occurs first.
(3) If such termination of employment is as a result of termination for
cause such option will terminate on the date the optionee ceases to be an
employee of the Company or one of its subsidiaries.
(4) If such termination of employment is because the optionee has become
permanently disabled (within the meaning of Section 22(e)(3) of the Code), such
option shall terminate on the last day of the twelfth month from the date such
optionee ceases to be an employee, or on the date on which the option expires by
its terms, whichever occurs first.
(5) An option granted to a director shall terminate on the last day of the
third month after such director ceases to serve as a director.
(6) In the event of the death of any optionee (whether employee or
director), any option granted to such optionee shall terminate on the last day
of the twelfth month from the date of death, or on the date on which the option
expires by its terms, whichever occurs first.
(b) Exercisability.
An option granted to a director or an employee optionee who ceases to be a
director or an employee of the Company or one of its subsidiaries shall be
exercisable only to the extent that the right to purchase shares under such
option has accrued and is in effect on the date such optionee ceases to be a
director or an employee of the Company or one of its subsidiaries, provided
however that an option granted to a director who does not stand for reelection
to the Board of Directors upon the expiration of such director's term of office
shall be exercisable as to the full amount of the shares covered by such option,
notwithstanding the provisions of such option concerning vesting.
11. Options Not Transferrable.
The right of any optionee to exercise any option granted to him or her
shall not be assignable or transferrable by such optionee otherwise than by will
or the laws of descent and distribution, and any such option shall be
exercisable during the lifetime of such optionee only by him or her. Any option
granted under the Plan shall be null and void and without effect upon the
bankruptcy of the optionee to whom the option is granted, or upon any attempted
assignment or transfer, except as herein provided, including without limitation
any purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, attachment, trustee process or similar
process, whether legal or equitable, upon such option. Notwithstanding the
foregoing, any option granted under the Plan (other than an incentive stock
option) may provide (if the Board or the Committee in its sole discretion
decides to include such a provision), that the optionee shall be entitled to
make a transfer of all or any part of such option to members of his immediate
family or a trust for the benefit of such persons, following notice to the
Secretary of the Company and approval by the Board or the Committee in its sole
discretion, provided that (in the case of options granted to persons subject to
Section 16 of the Securities Exchange Act of 1934 at the time of grant), any
such provision shall by its terms be inoperative and no such transfer shall be
permitted except when transfers to members of the optionee's immediate family or
a trust for the benefit of such persons are permissible under the conditions to
the availability of the exemption afforded by Regulation 16b-3 promulgated under
the Securities Exchange Act of 1934.
12. Recapitalizations, Reorganizations and the Like.
(a) In the event that the outstanding shares of the Common Stock of the
Company are changed into or exchanged for a different number or kind of shares
or other securities of the Company or of another corporation by reason of any
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, combination of shares, or dividends payable in capital stock,
appropriate adjustment shall be made in the number and kind of shares as to
which options may be granted under the Plan and as to which outstanding options
or portions thereof then unexercised shall be exercisable, to the end that the
proportionate interest of the optionee shall be maintained as before the
occurrence of such event; such adjustment in outstanding options shall be made
without change in the total price applicable to the unexercised portion of such
options and with a corresponding adjustment in the option price per share.
(b) In addition, unless otherwise determined by the Board or the Committee
in its sole discretion, in the case of any (i) sale or conveyance to another
entity of all or substantially all of the property and assets of the Company or
(ii) a Change in Control (as hereinafter defined) of the Company, the
purchaser(s) of the Company's assets or stock may, in his, her or its
discretion, deliver to the optionee the same kind of consideration that is
delivered to the stockholders of the Company as a result of such sale,
conveyance or Change in Control, or the Board or the Committee may cancel all
outstanding options in exchange for consideration in cash or in kind which
consideration in both cases shall be equal in value to the value of those shares
of stock or other securities the optionee would have received had the option
been exercised (to the extent then exercisable) and no disposition of the shares
acquired upon such exercise been made prior to such sale, conveyance or Change
in Control, less the option price therefor. Upon receipt of such consideration
by the optionee, his or her option shall immediately terminate and be of no
further force and effect. The value of the stock or other securities the
optionee would have received if the option had been exercised shall be
determined in good faith by the Board or the Committee of the Company, and in
the case of shares of the Common Stock of the Company, in accordance with the
provisions of Section 7 hereof. The Board or the Committee shall also have the
power and right to accelerate the exercisability of any options, notwithstanding
any limitations in this Plan or in the Agreement upon such a sale, conveyance or
Change in Control. Upon such acceleration, any options or portion thereof
originally designated as incentive stock options that no longer qualify as
incentive stock options under Section 422 of the Code as a result of such
acceleration shall be redesigned as non-qualified stock options. A "Change in
Control" shall be deemed to have occurred if any person, or any two or more
persons acting as a group, and all affiliates of such person or persons, shall
acquire shares of the Company's then outstanding Common Stock of the Company, in
one or more transactions, or series of transactions, such that following such
transaction or transactions, such person or group and affiliates beneficially
own twenty (20%) percent or more of the Company's Common Stock outstanding. Upon
the occurrence of a Change in Control, all options under the plan outstanding on
the date on which the Change in Control occurs will immediately become
exercisable in full.
(c) Upon dissolution or liquidation of the Company, all options granted
under this Plan shall terminate, but each optionee (if at such time in the
employ of or a director of the Company of any of its subsidiaries) shall have
the right, immediately prior to such dissolution or liquidation, to exercise his
or her option to the extent then exercisable.
(d) If by reason of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization, or liquidation, the Board or the
Committee shall authorize the issuance or assumption of a stock option or stock
options in a transaction to which Section 424(a) of the Code applies, then,
notwithstanding any other provision of the Plan, the Committee may grant an
option or options upon such terms and conditions as it may deem appropriate for
the purpose of assumption of the old option, or substitution of a new option for
the old option, in conformity with the provisions of such Section 424(a) of the
Code and the Regulations thereunder, and any such option shall not reduce the
number of shares otherwise available for issuance under the Plan.
(e) No fraction of a share shall be purchasable or deliverable upon the
exercise of any option, but in the event any adjustment hereunder of the number
of shares covered by the option shall cause such number to include a fraction of
a share, such fraction shall be adjusted to the nearest smaller whole number of
shares.
13. No Special Employment Rights.
Nothing contained in the Plan or in any option granted under the Plan shall
confer upon any option holder any right with respect to the continuation of his
or her employment by the Company (or any subsidiary) or interfere in any way
with the right of the Company (or any subsidiary), subject to the terms of any
separate employment agreement to the contrary, at any time to terminate such
employment or to increase or decrease the compensation of the option holder from
the rate in existence at the time of the grant of an option. Whether an
authorized leave of absence, or absence in military or government service, shall
constitute termination of employment shall be determined by the Board or the
Committee at the time.
14. Withholding.
The Company's obligation to deliver shares upon the exercise of any
non-qualified option granted under the Plan shall be subject to the option
holder's satisfaction of all applicable Federal, state and local income, excise,
employment and other tax withholding requirements. The Company and employee may
agree to withhold shares of Common Stock purchased upon exercise of an option to
satisfy the above-mentioned withholding requirements.
15. Restrictions on Issue of Shares.
(a) Notwithstanding the provisions of Section 8, the Company may delay the
issuance of shares covered by the exercise of any option and the delivery of a
certificate for such shares until one of the following conditions shall be
satisfied:
(i) The shares with respect to which such option has been exercised are at
the time of the issue of such shares effectively registered or qualified under
applicable Federal and state securities acts now in force or as hereafter
amended; or
(ii) Counsel for the Company shall have given an opinion, which opinion
shall not be unreasonably conditioned or withheld, that such shares are exempt
from registration and qualification under applicable Federal and state
securities acts now in force or as hereafter amended.
(b) It is intended that all exercises of options shall be effective, and
the Company shall use its best efforts to bring about compliance with the above
conditions within a reasonable time, except that the Company shall be under no
obligation to qualify shares or to cause a registration statement or a
post-effective amendment to any registration statement to be prepared for the
purpose of covering the issue of shares in respect of which any option may be
exercised, except as otherwise agreed to by the Company in writing.
16. Purchase for Investment; Rights of Holder on Subsequent Registration.
Unless the shares to be issued upon exercise of an option granted under the
Plan have been effectively registered under the Securities Act of 1933, as now
in force or hereafter amended, the Company shall be under no obligation to issue
any shares covered by any option unless the person who exercises such option, in
whole or in part, shall give a written representation and undertaking to the
Company which is satisfactory in form and scope to counsel for the Company and
upon which, in the opinion of such counsel, the Company may reasonably rely,
that he or she is acquiring the shares issued pursuant to such exercise of the
option for his or her own account as an investment and not with a view to, or
for sale in connection with, the distribution of any such shares, and that he or
she will make no transfer of the same except in compliance with any rules and
regulations in force at the time of such transfer under the Securities Act of
1933, or any other applicable law, and that if shares are issued without such
registration, a legend to this effect may be endorsed upon the securities so
issued. In the event that the Company shall, nevertheless, deem it necessary or
desirable to register under the Securities Act of 1933 or other applicable
statutes any shares with respect to which an option shall have been exercised,
or to qualify any such shares for exemption from the Securities Act of 1933 or
other applicable statutes, then the Company may take such action and may require
from each optionee such information in writing for use in any registration
statement, supplementary registration statement, prospectus, preliminary
prospectus or offering circular as is reasonably necessary for such purpose and
may require reasonable indemnity to the Company and its officers and directors
and controlling persons from such holder against all losses, claims, damages and
liabilities arising from such use of the information so furnished and caused by
any untrue statement of any material fact therein or caused by the omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made.
17. Loans.
The Company may not make loans to optionees to permit them to exercise
options.
18. Modification of Outstanding Options.
The Board or the Committee may authorize the amendment of any outstanding
option with the consent of the optionee when and subject to such conditions as
are deemed to be in the best interest of the Company and in accordance with the
purposes of this Plan.
19. Approval of Stockholders.
The Plan shall be subject to approval by the vote of stockholders holding
at least a majority of the voting stock of the Company present, or represented,
and entitled to vote at a duly held stockholders' meeting, or by written consent
of a majority of all the stockholders, within twelve (12) months after the
adoption of the Plan by the Board of Directors and shall take effect as of the
date of adoption by the Board upon such approval. The Board or the Committee may
grant options under the Plan prior to such approval, but any such option shall
become effective as of the date of grant only upon such approval, and,
accordingly, no such option may be exercisable prior to such approval.
20. Termination and Amendment of Plan.
Unless sooner terminated as herein provided, the Plan shall terminate ten
(10) years from the date upon which the Plan was duly adopted by the Board of
Directors of the Company. The Board of Directors may at any time terminate the
Plan or make such modification or amendment thereof as it deems advisable;
provided, however, that except as provided in Section 20, the Board of Directors
may not, without the approval of the stockholders of the Company obtained in the
manner stated in Section 19, increase the maximum number of shares for which
options may be granted or change the designation of the class of persons
eligible to receive options under the Plan or change the provisions of Section 6
regarding criteria for vesting of options. The Board or the Committee may grant
options to persons subject to Section 16(b) of the Securities and Exchange Act
of 1934 after an amendment to the Plan by the Board of Directors requiring
stockholder approval under Section 20, but any such option shall become
effective as of the date of grant only upon such approval and accordingly, no
such option may be exercisable prior to such approval. Termination or any
modification or amendment of the Plan shall not, without the consent of an
optionee, affect his or her rights under an option theretofore granted to him or
her.
21. Reservation of Stock.
The Company shall at all times during the term of the Plan reserve and keep
available such number of shares of stock as will be sufficient to satisfy the
requirements of the Plan and shall pay all fees and expenses necessarily
incurred by the Company in connection therewith.
22. Limitation of Rights in the Option Shares.
An optionee shall not be deemed for any purpose to be a stockholder of the
Company with respect to any of the options except to the extent that the option
shall have been exercised with respect thereto and, in addition, a certificate
shall have been issued theretofore and delivered to the optionee.
23. Notices.
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: President, and, if to an optionee, to the address as appearing on the
records of the Company.
1998 TERM CREDIT AGREEMENT
1998 TERM CREDIT AGREEMENT dated as of August 10, 1998 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
"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, and PNC Bank, National
Association and ABN AMRO Bank N.V., as syndication agents (the "Syndication
Agents" and, together with the Administrative Agent and the Documentation Agent,
the "Agents").
PRELIMINARY STATEMENTS:
(1) The Lenders (as defined below) have agreed to make Advances to the
Borrowers in order to allow the Borrowers to finance purchases of GNCI capital
stock as permitted in Section 2.13 hereof and to provide funds for general
corporate purposes permitted by this Agreement.
(2) The Lenders have indicated their willingness to lend such amounts on
the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree,
subject to the satisfaction of the conditions set forth in Section 3.01, 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" has the meaning specified in Section 2.01.
"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 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 the Closing Date, a percentage per annum
determined by reference to the Performance Level applicable on such date as set
forth below:
<TABLE>
<CAPTION>
-------------------- --------------------------- ========================
Applicable Margin for Applicable Margin for
Performance Base Rate Advances Eurodollar Rate
Level Advances
-------------------- --------------------------- ========================
-------------------- --------------------------- ========================
<S> <C> <C>
I 0.50% 1.50%
-------------------- --------------------------- ========================
-------------------- --------------------------- ========================
II 0.50% 1.75%
-------------------- --------------------------- ========================
-------------------- --------------------------- ========================
III 0.75% 2.00%
-------------------- --------------------------- ========================
</TABLE>
and, (X) on each of November 10, 1998, February 10, 1999, May 10, 1999 and
August 10, 1999 the Applicable Margin for each Performance Level and each Type
of Advance shall increase by an additional 0.25%; provided, however, that (Y)
(a) the Applicable Margin shall be adjusted on each Business Day after the date
on which the Administrative Agent receives the certificate required by Section
3.02(b) and the 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 August 10, 1998 until any such adjustment, the
Applicable Margin shall be as set forth opposite Performance Level I; (c) in the
event that the Restriction Termination Date does not occur on or before 120 days
following the Closing Date, the Applicable Margin for each Performance Level and
each Type of Advance shall be 4.00% and the provisions of the foregoing clause
(X) shall not apply further to increase the Applicable Margin and (d)
notwithstanding anything contained herein to the contrary (unless the provisions
of the foregoing clause (Y)(c) shall apply), the Applicable Margin shall be at
Performance Level III upon the occurrence and during the continuance of an Event
of Default.
"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.
"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 borrowing consisting of simultaneous Advances of the
same Type made by the Lenders.
"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 $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".
"Closing Date" means any date on or before August 10, 1998 on which the
conditions set forth in Article III applicable to the effectiveness of this
Agreement have been fulfilled or waived.
"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
"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
"Commitment", as such amount may be reduced at or prior to such time pursuant to
Section 2.03.
"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.
"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 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 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;
(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 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.
"Facility" means, at any time, the aggregate amount of the Lenders'
Commitments at such time.
"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 Dow
Jones Markets 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 Dow
Jones Markets 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.
"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 Credit Agreement" means the credit agreement
dated as of March 31, 1997, as amended, supplemented or otherwise modified from
time to time, by and among GNI, GNC, GNCI, the banks and other lenders listed on
the signature pages thereof, BNP, as administrative agent and as documentation
agent, and PNC Bank, National Association and ABN AMRO Bank N.V., as syndication
agents.
"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 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.
"GNCA" means GNC Amphora Company, a Delaware corporation.
"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 Delaware corporation.
"GNDLP" means General Nutrition Distribution LP, a Pennsylvania limited
partnership.
"GNF" means GNC Franchising, Inc., a Pennsylvania corporation.
"GNG" means General Nutrition Government Services, Inc., a Delaware
corporation.
"GN Investment" means GN Investment, 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.
"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.
"GNSC" means General Nutrition Sales Corporation., an Arizonia corporation
and a wholly-owned subsidiary of GNI.
"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;
(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.
"Indemnified Party" has the meaning specified in Section 8.04(b).
"INI" means Informed Nutrition, Inc., a Florida corporation and a
wholly-owned subsidiary of GNI..
"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 F 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;
(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.
"Lenders" means the Lenders listed on the signature pages hereof and each
Eligible Assignee that shall become a party hereto pursuant to Section 8.07.
"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 Parent Guaranty and the Subsidiary Guaranty (i) this
Agreement, (ii) the Notes, (iii) the Parent Guaranty, and (iv) the Subsidiary
Guaranty, (b) for purposes of the Parent Guaranty and the Subsidiary Guaranty,
(i) this Agreement, (ii) the Notes, (iii) the Parent Guaranty, (iv) the
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 Regulation 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 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 March
31, 1997.
"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 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 promissory note of a Borrower payable to the order of any
Lender, in substantially the form of Exhibit A hereto, evidencing the aggregate
indebtedness of such Borrower to such Lender resulting from Advances made by
such Lender.
"Notice of Borrowing" has the meaning specified in Section 2.02(a).
"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).
"Parent Guaranty" has the meaning specified in Section 3.01(e)(viii).
"PBGC" means the Pension Benefit Guaranty Corporation.
"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 3.00 : 1.00.
II Maximum Leverage Ratio is greater than 3.00 : 1.00 but less than or
equal to 3.25 : 1.00.
III 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;
(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.
"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).
"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 the then aggregate unpaid principal amount
of the Advances then outstanding.
"Restriction Termination Date" means the earlier to occur of (a) the date
on which the Fourth Amended and Restated Credit Agreement is repaid in full and
all commitments thereunder are terminated and (b) the lenders thereunder consent
to permitting the restrictions set forth in Section 5.02(a) and 5.02(m) of this
Agreement and Sections 7(b) and (l) of the Parent Guaranty.
"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.
"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.
"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, GNF, GNII, GNCIH, GNG, GNCL,
GNCC, GNCUK, GND, NFC, NFCI, NFN, GNDLP, GNSC, GN Investment, GNCA, INI and any
other Subsidiary of either GNC or GNI that enters into a guaranty pursuant to
Section 5.01(m).
"Subsidiary Guaranty" has the meaning specified in Section 3.01(e)(viii)
and shall include any subsidiary guaranty entered into by any Loan Party
pursuant to Section 5.01(m).
"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 Closing Date.
"Taxes" has the meaning specified in Section 2.11(a).
"Termination Date" means the earlier of July 1, 2002 and the date of
termination in whole of the Commitments pursuant to Section 2.04 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).
"Type" refers to the distinction between Advances bearing interest at the
Base Rate and Advances bearing interest at the Eurodollar Rate.
"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.
"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".
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. Each Lender severally agrees, on the terms and
conditions hereinafter set forth, to make advances (the "Advances") to the
Borrowers from time to time on any Business Day during the period from the
Closing Date until September 10, 1998 in an amount for each such Advance not to
exceed such Lender's unused Commitment on such Business Day. Each 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 Advances made by the Lenders
ratably according to their Commitments. Within the limits of each Lender's
unused Commitment in effect from time to time, the Borrowers may borrow under
this Section 2.01 and prepay pursuant to Section 2.05. Amounts borrowed under
this Section 2.01 and repaid or prepaid may not be reborrowed.
SECTION 2.02. Making the Advances. (a) Each 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 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 Lender of the
applicable interest rate under Section 2.06(a)(ii). Each 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.
(b) 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 $5,000,000 or (3) if the obligation of the 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 three separate
Borrowings.
(c) Each Notice of 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 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.
(d) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Borrowing 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.
(e) 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.
SECTION 2.03. Repayment. 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 Advances borrowed by it.
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 $5,000,000 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. The Borrowers shall repay all Advances then outstanding on
the 30th day following the date on which the Fourth Amended and Restated Credit
Agreement is repaid in full and all commitments thereunder are terminated.
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 Closing Date on the last Business
Day of each March, June, September and December during such periods, commencing
on September 30, 1998, 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 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 Lender's average daily unused Commitment from the Closing
Date in the case of each initial 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 September 10, 1998, payable on September 30, 1998 at
a rate per annum equal to 0.25%.
(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.
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(b) and no Conversion of any Advances shall result in more separate
Borrowings than permitted under Section 2.02(b). 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 $5,000,000, 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 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, 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 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 hereunder and other commitments of
such type, 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 hereunder; 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 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 will
automatically, upon such demand, 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 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.
(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.
(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 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, 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 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. 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) finance purchases of GNCI capital stock as permitted in Section
5.02(f)(i) hereof and (ii) provide funds for general corporate purposes
permitted by this Agreement.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Closing Date. This Agreement shall
become effective on and as of the date (the "Closing Date"), on which each of
the following conditions precedent shall have been satisfied:
(a) No Material Adverse Change shall have occurred since January 31, 1998.
(b) 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.
(c) The Borrowers shall have paid to the Administrative Agent all
reasonable accrued fees of the Agents and the 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).
(d) 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.
(e) The Administrative Agent shall have received on or before the Closing
Date the following, each dated the Closing 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 Closing 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.
(v) A copy of a certificate of the Secretary of State of the Commonwealth
of Pennsylvania, dated reasonably near the Closing 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 Closing
Date (the statements made in such certificate shall be true on and as of the
Closing 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(e)(iv), (B) the truth and accuracy of the bylaws of such Borrower or such
other Loan Party as in effect on the Closing 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
limited partnership 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 Closing 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) A 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 "Parent Guaranty"), duly executed by GNCI and GNI and a 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
"Subsidiary Guaranty"), duly executed by each Subsidiary Guarantor.
(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 January 31, 1998 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 2002.
(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 such
other matters as any Lender through the Administrative Agent may reasonably
request.
SECTION 3.02. Conditions Precedent to Each Borrowing. The obligation of
each Lender to make an Advance on the occasion of each Borrowing (including the
initial Borrowing) shall be subject to the further conditions precedent that on
the date of such Borrowing (a) the following statements shall be true (and each
of the giving of the applicable Notice of Borrowing and the acceptance by the
relevant Borrower of the proceeds of such Borrowing shall constitute a
representation and warranty by such Borrower that on the date of such Borrowing
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, before and after giving effect
to such Borrowing 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); and
(ii) no event has occurred and is continuing, or would result from such
Borrowing or from the application of the proceeds therefrom, that constitutes a
Default;
(b) the Administrative Agent shall have received a certificate from GNCI
setting forth, on a pro forma basis, the computation of the Maximum Leverage
Ratio as of the end of the immediately preceding fiscal quarter, but giving
effect to the Total Debt outstanding on the date of such Borrowing and after
giving effect to the Advances requested thereby; and (c) the Administrative
Agent shall have received such other approvals, opinions or documents as any
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 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 GNDLP (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. GNDLP (i) is a limited partnership duly formed and validly
existing under the laws of the Commonwealth of Pennsylvania, (ii) is duly
qualified as a limited partnership 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.
(b) Set forth on Schedule 4.01(b) hereto is a complete and accurate list as
of the Closing Date of all Subsidiaries of each Loan Party, showing as of the
Closing 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 Closing Date and the percentage
of the outstanding shares of each such class or certificates of beneficial
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 Closing 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 duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, (ii) is duly qualified and in good standing 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.
(c) The execution, delivery and performance by each Loan Party other than
GNDLP 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 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 GNDLP 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 GNDLP, have been duly
authorized by all necessary action and consent, and do not (i) contravene
GNDLP's organizational documents, (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 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. 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 January 31, 1998, 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 January 31, 1998 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 January 31, 1998
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 January 31, 1998, there has been no Material Adverse
Change.
(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(e)(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 Closing 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.
(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 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. 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'
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.
(y) Each Loan Party has reviewed the areas within its business and
operations which could be adversely affected by, and has developed or is in the
process of developing a program to address on a timely basis, "Year 2000 Issues"
(i.e., the risk that computer applications used by such Loan Party may be unable
to recognize or perform properly date sensitive functions involving certain
dates prior to, and any date after, December 31, 1999) and, based on such
review, such Loan Party reasonably believes that the "Year 2000 Issues" (and the
cost of remedying the same) will not have a Material Adverse Effect.
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
$750,000; 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 $750,000 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 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 Partnership Existence, Etc. Preserve and
maintain, and cause each of its Subsidiaries to preserve and maintain, as
applicable, its corporate or partnership 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.
(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 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 Restriction Termination Date, 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 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), Section 5.02(b)(iv)(B) and Section 7(c) of the Parent Guaranty
shall not exceed 110% of an amount equal to $200,000,000 less Advances at any
one time outstanding (including, without limitation, the aggregate amount of all
outstanding and other undrawn commitments to provide Indebtedness to GNCI and
its Subsidiaries pursuant to this Section 5.02(b)(i)(A), Section 5.02(b)(iv)(B)
hereof and Section 7(c) of the Parent Guaranty); and
(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)(i)(A)(y); and provided further that any such Indebtedness shall (1)
contain covenants that are no 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 September 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:
(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), this Section 5.02(b)(iv)(B) and Section 7(c) of the Parent
Guaranty shall not exceed 110% of an amount equal to $200,000,000 (or other
equivalent thereof in any Foreign Currency, determined as of the date of the
incurrence of such Indebtedness) less Advances at any one time outstanding
(including, without limitation, the aggregate amount of all outstanding and
other undrawn commitments to provide Indebtedness to GNCI and its Subsidiaries
pursuant to Section 5.02(b)(i)(A), Section 5.02(b)(iv)(B) hereof and Section
7(c) of the Parent Guaranty);
(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 $55,000,000 at any time outstanding;
(C) Indebtedness under the Fourth Amended and Restated Credit Agreement
dated as of March 31, 1997, as amended from time to time, among GNI and GNC, as
borrowers, GNCI and the Restatement Lenders and Agents named therein, in an
aggregate amount not to exceed $700,000,000 at any one time outstanding; and
(D) 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 $33,000,000 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 amount of
$22,000,000 in any single transaction or series of related transactions or,
since March 31, 1997, $82,500,000 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
$330,000,000 (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;
(v) Investments by the Borrowers in non-wholly-owned Subsidiaries in an
aggregate amount not to exceed $110,000,000 (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 $55,000,000 (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 $33,000,000 (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 $5,500,000 (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 March 31, 1997 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 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 $5,500,000 (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 $110,000,000 (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 since March 31, 1997
not to exceed $250,000,000, plus an amount equal to 50% of the cumulative
Consolidated net income of GNCI and its Subsidiaries from February 1, 1998 plus
amounts used by GNCI prior to April 30, 1998 to repurchase its outstanding
capital stock or to pay dividends to its shareholders;
(ii) purchase, redeem or defease the PIK Preferred Stock;
(iii) in the case of GNI, issue or sell any capital stock to GNCI;
(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; and
(v) declare and pay dividends to GNCI to provide GNCI with funds to meet
its interest obligations under the unsecured Indebtedness, if any, incurred by
GNCI pursuant to Section 7(c) of the Parent Guaranty.
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 certificate of partnership, 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), or (4) the prepayment of any amounts under the Fourth Amended and
Restated Credit Agreement, (ii) amend, 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 since March 31, 1997 not to exceed
$27,500,000.
(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. From and after the Restriction Termination Date, 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
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.
(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 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 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:
Maximum
Fiscal Year Leverage Ratio
Fiscal Year 1998 3.75 : 1.00
Fiscal Year 1999 3.50 : 1.00
Fiscal Year 2000 3.00 : 1.00
Fiscal Year 2001 2.50 : 1.00
Fiscal Year 2002 2.50 : 1.00
(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:
Adjusted Maximum
Fiscal Year Leverage Ratio
Fiscal Year 1998 3.75 : 1.00
Fiscal Year 1999 3.50 : 1.00
Fiscal Year 2000 3.00 : 1.00
Fiscal Year 2001 2.50 : 1.00
Fiscal Year 2002 2.50 : 1.00
(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:
Fixed Charge
Fiscal Year Coverage Ratio
Fiscal Year 1998 1.25 : 1.00
Fiscal Year 1999 1.25 : 1.00
Fiscal Year 2000 1.35 : 1.00
Fiscal Year 2001 1.35 : 1.00
Fiscal Year 2002 1.35 : 1.00
(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 other than Net Cash Proceeds received by GNCI since April
30, 1998 from the exercise of management stock options and/or from the sale of
common stock to management directors or employees pursuant to stock purchase
plans of GNCI or its Affiliates plus (x) an amount up to $250,000,000 of funds
used by GNCI since April 30, 1998 to repurchase its outstanding capital stock or
to pay dividends to its shareholders plus amounts used by GNCI prior to April
30, 1998 to repurchase its outstanding capital stock or to pay dividends to its
shareholders 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:
Minimum
Fiscal Year Net Worth
Fiscal Year 1998 $270,000,000
Fiscal Year 1999 $336,000,000
Fiscal Year 2000 $405,000,000
Fiscal Year 2001 $477,000,000
Fiscal Year 2002 $477,000,000
SECTION 5.05. Restriction Termination Date. Effective on the earlier to
occur of the event described in clause (a) of the definition of Restriction
Termination Date and the date on which the lenders under the Fourth Amended and
Restated Credit Agreement consent to the modifications contemplated by this
Section 5.05 and Section 7(n) of the Parent Guaranty, Sections 5.01(b), 5.02(a),
5.02(b)(v)(B) and (vi), 5.02(e)(iv), (v), (vi), (vii) and (xi), 5.02(m) and
Section 5.04 of this Article V will be amended to conform to the comparable
provisions of the Fourth Amended and Restated Credit Agreement as in effect on
the Closing Date.
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 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 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
(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 Closing 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?% 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;
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 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.
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 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. Agent's 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 and Affiliates. With respect to its Commitments, the
Advances made by it and the Note or Notes issued to it, each Agent shall have
the same rights and powers under the Loan Documents as any other Lender and may
exercise the same as though it were not an Agent and the term "Lender" or
"Lenders" shall, unless otherwise expressly indicated, include each Agent in its
individual capacity. Each Agent and its 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, 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 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 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 (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 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 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' gross negligence or willful misconduct. Without limitation of
the foregoing, each Lender agrees to reimburse the Administrative Agent 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 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 aggregate principal amount of the
Advances outstanding at such time and owing to the respective Lenders. 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 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; 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, 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
under this Agreement. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor Administrative Agent, 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, such
successor Administrative Agent shall succeed to and become vested with all the
rights, powers, discretion, privileges and duties of the retiring Administrative
Agent, other than with respect to funds transfers and other similar aspects of
the administration of Borrowings and payments by the Borrowers in respect of the
Facility, and the retiring Administrative Agent shall be discharged from its
duties and obligations under this Agreement, other than as aforesaid.
SECTION 7.07. The Agents. Neither the Documentation Agent, nor either
Syndication 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 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 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 300 Sixth Avenue, Pittsburgh, PA 15222,
Attention: Chief Financial Officer, if to GNC, at its address at 300 Sixth
Avenue, Pittsburgh, PA 15222, Attention: Chief Financial Officer, with a copy to
Hutchins, Wheeler & Dittmar, A Professional Corporation, at its address at 101
Federal Street, Boston, MA 02110, Attention: Steven M. Peck; if to any 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: Structured Finance Group, telecopier number (212) 418-8269;
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 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.
(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 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, and the Agents and when the
Administrative Agent shall have been notified by each Lender that such Lender
has executed it and thereafter shall be binding upon and inure to the benefit of
the Borrowers, the Agents, 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 $5,000,000 (or, in
the event that the assignment is to a Person that, immediately prior to such
assignment, was a Lender, $1,000,000), 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
$5,000,000, (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 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 of, and principal amount of the Advances owing 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 pursuant to such Assignment and Acceptance and, if the assigning Lender has
retained a Commitment hereunder, 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 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 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. 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 8.11. 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.
(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 8.12. Waiver of Jury Trial. Each of the Borrowers, the Agents 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.
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
Title:
GENERAL NUTRITION CORPORATION,
as Borrower
By
Title:
GENERAL NUTRITION COMPANIES, INC.
By
Title:
BANQUE NATIONALE DE
PARIS,
as Administrative Agent, Documentation Agent
and Lender
By
Title:
By
Title:
PNC BANK, NATIONAL ASSOCIATION,
as Syndication Agent and Lender
By
Title:
ABN AMRO BANK N.V.,
as Syndication Agent and Lender
By
Title:
By
Title:
COPY AS EXECUTED TOGETHER WITH
EXHIBITS D, E, AND F AS SEPARATELY
EXECUTED AND OPINIONS DELIVERED
PURSUANT THERETO
U.S. $100,000,000
1998 TERM CREDIT AGREEMENT
Dated as of August 10, 1998
Among
GENERAL NUTRITION, INCORPORATED and
GENERAL NUTRITION CORPORATION,
as Borrowers,
and
GENERAL NUTRITION COMPANIES, INC.
and
THE LENDERS NAMED HEREIN,
as Lenders,
and
BANQUE NATIONALE DE PARIS,
as Administrative Agent and as Documentation Agent
and
PNC BANK, NATIONAL ASSOCIATION and ABN AMRO BANK N.V.
as Syndication Agents
AMENDMENT NO. 1 TO THE
$100,000,000 1998 TERM CREDIT AGREEMENT
DATED AS OF DECEMBER 16, 1998
Dated as of December 16, 1998
AMENDMENT NO. 1 TO THE $100,000,000 1998 TERM CREDIT AGREEMENT, dated as of
December 16, 1998, among General Nutrition, Incorporated, a Pennsylvania
corporation and General Nutrition Corporation, a Pennsylvania corporation (the
"Borrowers"), General Nutrition Companies, Inc., a Delaware corporation
("GNCI"), the banks, financial institutions and other institutional lenders
listed as restatement lenders on the signature pages hereof (the "Lenders"),
Banque Nationale de Paris ("BNP"), as administrative agent and as documentation
agent (the "Agent") for the Lenders, PNC Bank, National Association and ABN AMRO
Bank N.V., as syndication agents for the Lenders (the ?Syndication Agents?).
PRELIMINARY STATEMENTS:
(1) The Borrowers, GNCI, the Lenders, the Agent and the Syndication Agents
have entered into a $100,000,000 1998 Term Credit Agreement dated as of August
10, 1998 (the "Credit Agreement"). Capitalized terms not otherwise defined in
this Amendment have the same meanings as specified in the Credit Agreement.
(2) The Borrowers have requested that the Lenders consent to certain
amendments to the Credit Agreement to permit (i) the Supplemental Lenders (as
hereinafter defined) to make Supplemental Advances (as hereinafter defined) on
the terms and conditions set forth below and (ii) an increase in the Commitments
and additional Borrowings under the Facility for the purposes set forth in
Section 2.13 of the Credit Agreement.
(3) The Lenders are, on the terms and conditions stated below, willing to
grant the requests of the Borrowers and the Borrowers and the Lenders have
agreed to amend the Credit Agreement as hereinafter set forth.
SECTION 1. Amendments to Credit Agreement. The Credit Agreement is
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section2, hereby amended as follows:
(a) Amendments to Section 1.01. Section 1.01 is amended as follows:
"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
"Commitment" and any Supplemental Commitment or, in either case, if any 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 "Commitment" or "Supplemental
Commitment", as such amount may be reduced at or prior to such time pursuant to
Section 2.03.
(ii) the definition of "Facility" is amended in full to read as follows:
"Facility" means, at any time, the aggregate amount of the Lenders'
Commitments and the Supplemental Lenders' Supplemental Commitments at such time.
(iii) the definition of "Lenders" is amended in full to read as follows:
"Lenders" means the Lenders listed on the signature pages hereof and a
Supplemental Lender that has a Supplemental Commitment pursuant to Amendment No.
1 and each Eligible Assignee that shall become a party to the Credit Agreement
pursuant to Section 8.07.
(iv) certain new definitions are added to read as follows:
"Supplemental Advance" has the meaning specified in Section 2.01(a).
"Supplemental Borrowing" means a Borrowing consisting of simultaneous
Supplemental Advances of the same type made by one or more Supplemental Lenders.
"Supplemental Commitment" means, with respect to any Supplemental Lender at
any time, either the amount set forth opposite such Supplemental Lender's name
on Schedule I hereto under the caption "Supplemental Commitment" or the
aggregate amount set forth in the Register by the Agent pursuant to Section
2.01(b) for such Supplemental Lender as its ?Supplemental Commitment? on any
future date on or before January 31, 1999, in any event in an aggregate amount
not to exceed $50,000,000, or, in either case, if such Supplemental Lender has
entered into one or more Assignments and Acceptances, the aggregate amount set
forth for such Supplemental Lender in the Register maintained by the
Administrative Agent pursuant to Section 8.07(e) as such Supplemental Lender's
"Supplemental Commitment", as such amount may be reduced at or prior to such
time pursuant to Section 2.05.
"Supplemental Commitment Date" has the meaning specified in Section
2.01(b)(ii).
"Supplemental Lender" means the Lenders listed on the signature pages
hereof and any other Persons who shall enter into a Supplemental Commitment
pursuant to Section 2.01(b).
"Supplement Date" has the meaning specified in Section 2.01(b)(i).
(b) Section 2.01 is amended to add, after the caption thereof, "(a)" and a
new sentence is added following the second sentence of such Section 2.01 to read
as follows:
In addition to the "Advances" made by the Lenders pursuant to this Section
2.01, each Supplemental Lender severally agrees, on the terms and conditions
hereinafter set forth, to make advances (each, a "Supplemental Advance") to the
Borrowers on any Business Day on or prior to January 31, 1999 in an amount not
to exceed such Supplemental Lender's Supplemental Commitment at such time.
(c) Section 2.01 is further amended by adding a new subsection (b) to read
as follows:
"(b) Supplemental Advances. (i) The Borrowers may at any time prior to
January 31, 1999, by notice to the Administrative Agent, obtain Supplemental
Commitments in an aggregate amount not to exceed $50,000,000 to be effective as
of each such date (each, a "Supplement Date") specified by notice from the
Administrative Agent to the Borrowers; provided, however, that no Default shall
have occurred and be continuing as of the date of either such notice or as of
the Supplemental Date or shall occur as a result thereof.
(ii) The Administrative Agent shall promptly notify such Lenders or other
Persons that could be Eligible Assignees of such request by the Borrowers for
Supplemental Commitments, which notice shall include (x) the proposed amount of
such requested Supplemental Commitments, (y) the proposed Supplement Date and
(z) the date by which Lenders or such other Persons wishing to enter into
Supplemental Commitments must commit thereto (the "Supplement Commitment Date").
Each Lender or other Person so notified that is willing to enter into a
Supplemental Commitment shall give written notice to the Administrative Agent on
or prior to the Supplemental Commitment Date of the amount by which it is
willing to enter into a Supplemental Commitment. If such Lenders or other
Persons notify the Administrative Agent that they are willing to enter into
Supplemental Commitments by an aggregate amount that exceeds the amount
permitted by Section 2.01(b)(i), the requested Supplemental Commitments shall be
allocated among such Lenders and other Persons willing to participate therein in
such amounts as are determined by the Administrative Agent.
(iii) On or before each Supplement Date, each institution that agrees to
enter into a Supplemental Commitment shall commit thereto and shall become a
Lender party to this Agreement as of such Supplement Date or, if already a
Lender, the Term Commitment of such Lender for such Supplement Commitment shall
be so increased by such amount (or by the amount allocated to such Lender
pursuant to the last sentence of Section 2.05(b)(ii)) as of such Supplement
Date; provided, however, that the Administrative Agent shall have received on or
before such Supplement Date the following, each dated such date:
(x) a lender supplement from each Supplemental Lender that is not then an
existing Lender, in form and substance acceptable to the Administrative Agent,
duly executed by each such Supplemental Lender, the Administrative Agent; and
(y) confirmation from each Supplemental Lender that is then an existing
Lender of the increase in the amount of its Supplemental Commitment in a writing
satisfactory to the Borrower and the Administrative Agent.
On each Supplement Date, upon fulfillment of the conditions set forth in
the immediately preceding sentence of this Section 2.01(b)(iii), the
Administrative Agent shall notify the Lenders (including, without limitation,
each Supplemental Lender) and the Borrowers, on or before 1:00 P.M. (New York
City time), by telecopier or telex, of the Supplemental Commitments to be made
effective on such Supplement Date and shall record in the Register the relevant
information with respect to each Supplemental Lender on such date.
(d) Section 2.10(a) is amended by adding, after the second sentence
thereof, a new sentence, to read as follows:
Upon any Supplemental Lender becoming a Lender hereunder as a result of a
Supplemental Commitment pursuant to Section 2.01(b) and upon the Administrative
Agents acceptance of such Lenders supplement referred to in Section 2.01(b)
and recording of the information contained therein in the Register, from and
after the Supplement Date applicable to such Supplemental Commitment, the
Administrative Agent shall make payments hereunder and under the Notes issued in
connection therewith in respect of the interest assumed thereby to the
Supplemental Lender.
(e) Schedule I to the Credit Agreement is supplemented to add the
Supplemental Commitments of the Supplemental Lenders as set forth on Schedule I
to this Amendment.
SECTION 2. Conditions of Effectiveness. This Amendment shall become
effective as of the date hereof when, and only when the Administrative Agent
shall have received:
(a) counterparts of this Amendment executed by the Borrowers, GNCI, the
Agent, the Syndication Agent and the Lenders or, as to any of such Lenders,
advice satisfactory to the Administrative Agent that such Lender has executed
this Amendment, and the consent attached hereto (the "Consent") executed by each
of the Loan Parties other than the Borrowers;
(b) Certified copies of the resolutions of the Board of Directors of
(i) each of the Borrowers approving this Amendment and the matters contemplated
hereby and thereby and (ii) each of the other Loan Parties evidencing approval
of the Consent and the matters contemplated hereby and thereby;
(c) A certificate of the Secretary or an Assistant Secretary of each of the
Borrowers and of each of the other Loan Parties, respectively, certifying the
names and true signatures of the officers, of each of the Borrowers and of each
of the other Loan Parties, respectively, authorized to sign, in the case of each
of the Borrowers, this Amendment, and, in the case of each of the other Loan
Parties, the Consent.
(d) A favorable opinion of counsel to the Borrowers and the Parent
Guarantor, in form and substance satisfactory to the Administrative Agent.
(e) A certificate signed by a duly authorized officer of each of the
Borrowers, stating that:
(i) The representations and warranties contained in Section 3 are correct
on and as of the date of such certificate as though made on and as of such date
other than any such representations or warranties that, by their terms, refer to
a date other than the date of such certificate; and
(ii) No event has occurred and is continuing that constitutes a Default
under the Loan Documents.
SECTION 3. Representations and Warranties of the Borrowers. The Borrowers
represent and warrant as follows:
(a) Each Loan Party is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation.
(b) The execution, delivery and performance by each Loan Party of this
Amendment, the Consent and the Loan Documents, as amended hereby, to which it is
or is to be a party 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 of 1934, as amended, and the Racketeer
Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act
of 1970), rule or regulation (including, without limitation, Regulation X of the
Board of Governors of the Federal Reserve System), or any 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.
(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 the due execution, delivery, recordation, filing or
performance by any Loan Party of this Amendment, the Consent or any of the Loan
Documents, as amended hereby, to which it is or is to be a party. (d) This
Amendment has been duly executed and delivered by each Loan Party party hereto
and the Consent has been duly executed and delivered by each Loan Party party
thereto. This Amendment, the Consent and each of the other Loan Documents, as
amended hereby, to which such Loan Party is a party are legal, valid and binding
obligations of such Loan Party, enforceable against such Loan Party in
accordance with their respective terms.
(e) There is no action, suit, investigation, litigation or proceeding
affecting any Loan Party or any of their Subsidiaries (including, without
limitation, any Environmental Action) pending or threatened before any court,
governmental agency or arbitrator that (i) is reasonably likely to have a
Material Adverse Effect or (ii) purports to affect the legality, validity or
enforceability of this Amendment, the Consent or any of the other Loan
Documents, as amended hereby.
SECTION 4. Reference to and Effect on the Loan Documents. (a) On and after
the effectiveness of this Amendment, each reference in the Credit Agreement to
"this Agreement", "hereunder", "hereof" or words of like import referring to the
Credit Agreement, and each reference in the Notes and each of the other Loan
Documents to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement, as amended by this Amendment.
(b) The Credit Agreement, as specifically amended by this Amendment, and
the Notes are and shall continue to be in full force and effect and are hereby
in all respects ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, operate as a waiver of any right, power or
remedy of any Lender or the Administrative Agent under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
SECTION 5. Costs, Expenses. The Borrowers agree to pay on demand all costs
and expenses of the Administrative Agent in connection with the preparation,
execution, delivery and administration, modification and amendment of this
Amendment and the other instruments and documents to be delivered hereunder
(including, without limitation, the reasonable fees and expenses of counsel for
the Administrative Agent) in accordance with the terms of Section 8.04 of the
Credit Agreement.
SECTION 6. Execution in Counterparts. This Amendment 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 but one and the same agreement. Delivery
of an executed counterpart of a signature page to this Amendment by telecopier
shall be effective as delivery of a manually executed counterpart of this
Amendment.
SECTION 7. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
GENERAL NUTRITION, INCORPORATED,
as Borrower
By
Title:
GENERAL NUTRITION CORPORATION,
as Borrower
By
Title:
GENERAL NUTRITION COMPANIES, INC.
By
Title:
BANQUE
NATIONALE DE PARIS,
as Administrative Agent, Documentation Agent
and Lender
By
Title:
By
Title:
PNC BANK, NATIONAL ASSOCIATION,
as Syndication Agent and Lender
By
Title:
ABN AMRO BANK N.V.,
as Syndication Agent and Lender
By
Title:
By
Title:
KEYBANK NATIONAL ASSOCIATION,
as Lender
By
Title:
PILGRIM PRIME RATE TRUST,
as Lender
By
Title:
CONSENT Dated as of December 16,1998 The undersigned, (a) General Nutrition
Companies, Inc., a Delaware corporation ("GNCI") and General Nutrition,
Incorporated ("GNI"); GNI and GNCI each being a "Guarantor"; collectively being
the "Guarantors") under the Parent Guaranty dated as of August 10, 1998 (the
"Guaranty") and (b) each of the undersigned Persons designated on the signature
pages hereof as a "Subsidiary Guarantor" (each, a "Subsidiary Guarantor") under
the Subsidiary Guaranty dated as of August 10, 1998 (the "Subsidiary Guaranty"),
in each case in favor of the Agent, for its benefit and the benefit of the
Lenders parties to the Credit Agreement referred to in the Amendment to which
this Consent is attached, hereby consent to such Amendment and hereby confirm
and agree that notwithstanding the effectiveness of such Amendment, each of the
Guaranty and the Subsidiary Guaranty shall continue to be in full force and
effect and is hereby ratified and confirmed in all respects, except that, on and
after the effectiveness of such Amendment, each reference in the Guaranty and
the Subsidiary Guaranty to the "Credit Agreement", "thereunder", "thereof" or
words of like import shall mean and be a reference to the Credit Agreement, as
amended by such Amendment and each reference in the Guaranty to the "Guaranty",
"thereunder", "thereof" or words of like import shall mean and be a reference to
the Parent Guaranty, as amended by such Amendment.
GENERAL NUTRITION COMPANIES,
INC.
By Title:
GENERAL NUTRITION, INCORPORATED
By Title:
SUBSIDIARY GUARANTORS
GENERAL NUTRITION
CORPORATION
By
Title:
Address:
GENERAL NUTRITION PRODUCTS,
INC.
By
Title:
Address:
NATURE?S FRESH NORTHWEST, INC.
By
Title:
Address:
GENERAL NUTRITION GOVERNMENT SERVICES, INC.
By
Title:
Address:
GNC (CANADA) HOLDING COMPANY
By
Title:
Address:
GENERAL NUTRITION INVESTMENT
COMPANY
By
Title:
Address:
GENERAL NUTRITION DISTRIBUTION, L.P.,
formerly known as
GENERAL NUTRITION
SERVICES, INC.
By
Title:
Address:
GNC FRANCHISING, INC.
By
Title:
Address:
GNC LIMITED
By
Title:
Address:
GENERAL NUTRITION INTERNATIONAL, INC.
By
Title:
Address:
GENERAL NUTRITION SALES CORPORATION
By
Title:
Address:
GNC (UK) HOLDING COMPANY
By
Title:
Address:
NATURE FOOD CENTRES, INC.
By
Title:
Address:
NFC, INC.
By
Title:
Address:
GNC INTERNATIONAL HOLDINGS, INC.
By
Title:
Address:
Schedule I
Commitments and Applicable Lending Offices
(continued)
Schedule I
Supplemental Commitments and Applicable Lending Offices
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Supplemental Lender Supplemental Domestic Lending Office and
Commitment Eurodollar Lending Office
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pilgrim Prime Rate Trust $15,000,000.00 2 Renaissance Square
40 North Central Avenue
Suite 1200
Phoenix, AZ 85004-4424
Tel: (602) 417-8212
Fax: (602) 417-8327
Attention: Michel Prince
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
GENERAL NUTRITION COMPANIES, INC. (DE)
SUBSIDIARY ORGANIZATIONAL CHART
<TABLE>
<CAPTION>
Percentage owned by State of Incorporation
Name of Subsidiary Registrant
- -------------------------------------------------------------------- ---------------------- -----------------------
<S> <C>
General Nutrition, Incorporated (GNI) 100% Pennsylvania
General Nutrition Products, Inc. 100 South Carolina
General Nutrition Corporation 100 Pennsylvania
GNC Puerto Rico, Inc. 100 Puerto Rico
Nature Food Centres, Inc. 100 Maryland
NFC, Inc. 100 Massachusetts
GNC Franchising, Inc. 100 Pennsylvania
General Nutrition International, Inc 100 Delaware
GNC International Holdings, Inc. 100 Delaware
GNC Foreign Sales Corporation 100 Barbados
General Nutrition Investment Company 100 Arizona
General Nutrition Centers (NZ) Limited 100 New Zealand
DFC Thompson Australia PTY Limited 100 New South Wales
General Nutrition PTY Limited 100 New South Wales
General Nutrition Distribution L.P. 100 Pennsylvania
General Nutrition Sales Corporation 100 Arizona
GN Investment, Inc. 100 Delaware
GNC (UK) Holding Company 100 Delaware
Health & Diet Group Limited 100 United Kingdom
Health Now Publishing Company Limited 100 United Kingdom
Health & Diet Food Company Limited 100 United Kingdom
Food Supplements Company Limited 100 United Kingdom
The Luaka Tea Company Limited 100 United Kingdom
Blakeys Food Company Limited 100 United Kingdom
Health & Diet Centres, Limited 100 United Kingdom
Cavanaugh & Cavanaugh, Limited 100 United Kingdom
Health & Diet Centres Franchising Limited 100 United Kingdom
Health Stop Limited 100 United Kingdom
Calorie Counter Limited 100 United Kingdom
GNC (Canada) Holding Company 100 Delaware
General Nutrition Centres Company 100 Nova Scotia
GNC, Limited 100 Delaware
GNC Amphora Company 100 Delaware
Informed Nutrition, Inc. 100 Florida
General Nutrition Government Services, Inc. 100 Delaware
Natural Solutions Functional Foods, LLC - Joint Venture 50 Delaware
</TABLE>
EXHIBIT 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
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 3, 1999 (April 22, 1999 as
to Note 19 to the consolidated financial statements), appearing in this Annual
Report on Form 10-K of General Nutrition Companies, Inc. for the year ended
February 6, 1999.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
May 7, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-06-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> FEB-06-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 98,926
<ALLOWANCES> 0
<INVENTORY> 294,325
<CURRENT-ASSETS> 429,564
<PP&E> 275,473
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,127,986
<CURRENT-LIABILITIES> 218,422
<BONDS> 796,877
0
0
<COMMON> 677
<OTHER-SE> 104,239
<TOTAL-LIABILITY-AND-EQUITY> 1,127,986
<SALES> 1,417,746
<TOTAL-REVENUES> 1,417,746
<CGS> 896,539
<TOTAL-COSTS> 896,539
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,608
<INCOME-PRETAX> 146,729
<INCOME-TAX> 55,752
<INCOME-CONTINUING> 90,977
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90,977
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.18
</TABLE>
