1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X// /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X// / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/ //x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / SolicitinSoliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
GENERAL NUTRITION COMPANIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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LOGO
October 2, 1996
Dear General Nutrition Stockholder:
We're taking steps[GNC Live Well Logo]
GENERAL NUTRITION COMPANIES, INC.
300 SIXTH AVENUE
PITTSBURGH, PENNSYLVANIA 15222
TO OUR STOCKHOLDERS:
We are pleased to further build General Nutrition's momentum andinvite you to create additional shareowner value. We want to tie our compensation programs to
enhancing shareowner value even more tightly than in the past. In that regard,
the Board of Directors has adoptedattend the General Nutrition Companies,
Inc. 1996
Long Term Incentive Program1998 Annual Meeting of Stockholders, which provides for a revampingwill be held on Thursday, June
25, 1998, in the Urban Room at the Westin William Penn Hotel, 530 William Penn
Place, Pittsburgh, PA 15219. The meeting will begin at 10:00 a.m. local time.
The matters to be acted on at the meeting are described in detail in the
attached notice of our compensation
program for senior managementmeeting and provides for a stock option planproxy statement. The meeting will also provide an
opportunity to give a
much larger group of our people a direct economic stake in our shareowners'
success. Shareholder approval ofreview with you the Long Term Incentive Program is required.
The first step is that the Compensation Committee of the Board of Directors
has established a minimum stockholding requirement for members of senior
management. All officersbusiness and affairs of the Company must own General Nutrition common stock
equal to one times their annual salary. If the officer's holdings are less than
the minimum requirement then any cash bonuses otherwise paid to him or her shall
be paid instead 50% in cash and 50% in common stock until they meet the
stockholding requirement. This requirement is designed to align the interests of
senior management with those of the stockholders.
In addition, the Long Term Incentive Program establishes a stock purchase
plan which offers directorsits
consolidated subsidiaries and senior management, officers, and other key
employees selected by the Compensation Committee thegive you an opportunity to purchase
company stockmeet your directors.
Please complete and sign the enclosed proxy card and return it promptly in
the accompanying envelope. This will ensure that your shares are represented at
a discountthe meeting.
Please read the proxy materials carefully. Your vote is important and the
Company appreciates your cooperation in considering and acting on the matters
presented.
I look forward to leverage that purchase with a matching loan
financed byseeing you at the company enabling them to purchase additional shares. This plan
will enable participants to stand alongside shareholders in both risk and
reward. The purchase plan offers participants financial incentives based on
long-term stock performance. This means that the Company's stock must perform
well for all shareowners in order for the purchase plan to pay off for its
participants.
The Long Term Incentive Program also provides a stock option plan for
directors, senior managers, and other key employees selected by the Compensation
Committee of the Board. Fully one-half of the options reserved under the Plan
will not be made available for grant unless the Company's stock price meets
stock appreciation hurdles of twenty percent per year, and once granted, all
options will vest 50% on a daily basis over a four-year period, and 50% of the
options will vest only if the Company's stock price appreciates twenty percent
per year from the date of grant. For directors and employees to gain from these
options, the stock has to meet or exceed these price targets.
Taken together, these actions will motivate aggressive business performance
that will benefit all shareowners.
Sincerely,meeting.
Very truly yours,
/s/ WILLIAM E. WATTS
WilliamWILLIAM E. WattsWATTS
President and
Chief Executive Officer
Pittsburgh, Pennsylvania
May 20, 1998
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LOGO[GNC LOGO]
GENERAL NUTRITION COMPANIES, INC.
921 PENN300 SIXTH AVENUE
PITTSBURGH, PENNSYLVANIA 15222
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OCTOBERTO BE HELD JUNE 25, 19961998
TO ALL STOCKHOLDERS:
A SpecialNotice is hereby given that the Annual Meeting of the Stockholders of GENERAL NUTRITION COMPANIES, INC.General
Nutrition Companies, Inc., a Delaware corporation, will be held on Tuesday, OctoberThursday,
June 25, 1996,1998, at 10:00 a.m. Eastern Daylight Time, in the Urban Room at 921the
Westin William Penn Avenue,Hotel, 530 William Penn Place, Pittsburgh, Pennsylvania 15222 forPA 15219.
Pursuant to the following purposes:
1. To consider and act upon a proposal to approveBy-Laws, the General Nutrition
Companies, Inc. 1996 Long Term Incentive Program, which includes the 1996
Management and Director Stock Purchase Plan and the 1996 Management and
Director Stock Option Plan.
2. To consider and act upon any other business which may properly come
before the meeting.
The Board of Directors has fixed the close of business
on September 27,
1995May 6, 1998 as the record date for the meeting. Alldetermination of stockholders of record on that date
arethe
Company entitled to receive notice of and to vote at the meeting.Annual Meeting. The
following items, described in the attached proxy statement, will be on the
agenda:
1. Election of two Class I directors to the Board of Directors for a
three-year term expiring in 2001;
2. To consider and vote upon a proposal to approve the Company's 1998
Management and Director Stock Option Plan;
3. Ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the current fiscal year; and
4. Transaction of such other business as may properly come before the
meeting or any adjournment thereof.
So far as management is aware, no business will properly come before the
Annual Meeting other than the matters described above.
By Order of the Board of Directors,
LOGO
/s/ JAMES M. SANDER
JamesJAMES M. SanderSANDER
Vice President --- Law,
Chief Legal Officer and Secretary
Pittsburgh, Pennsylvania
October 2, 1996May 20, 1998
PLEASE SIGN, DATE, AND RETURN THE ENCLOSED PROXY CARD APPOINTING ROBERT V. DUNN,
EDWIN J. KOZLOWSKI AND LOUIS MANCINI AS YOUR PROXIES, WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING.
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GENERAL NUTRITION COMPANIES, INC.
300 SIXTH AVENUE
PITTSBURGH, PENNSYLVANIA 15222
PROXY STATEMENT
This Proxy StatementANNUAL MEETING OF STOCKHOLDERS
JUNE 25, 1998
The following statement is furnishedmade in connection with the solicitation of proxiesthe
enclosed proxy by the Board of Directors of GENERAL NUTRITION COMPANIES, INC.General Nutrition Companies, Inc.
(the "Corporation""Company" or "GNCI") for use at the SpecialAnnual Meeting of StockholdersStockholders. The
approximate mailing date of this proxy material is May 20, 1998.
OUTSTANDING SECURITIES AND VOTING RIGHTS
Only holders of the Company's outstanding Common Stock (the "Common Stock")
have voting rights in connection with the proposals discussed herein. The close
of business on May 6, 1998 has been fixed by the Board of Directors as the
record date for the determination of stockholders of the Company entitled to
be held on
October 25, 1996,receive notice of and to vote at the timeAnnual Meeting. On May 6, 1998, there were
81,288,389 shares of Common Stock outstanding and place set forthentitled to vote. Each share
entitles the holder to one vote on each matter presented for stockholder
approval.
Shares represented by a properly executed proxy in the notice of the meeting,
and at any adjournments thereof. The approximate date on which this Proxy
Statement andaccompanying form of proxy are first being sent to stockholders is October 2,
1996.
If the enclosed proxy is properly executed and returned, it
will be voted at the meeting as specified in the manner directed by the stockholders.proxy. If no instructionssigned proxies are
specified
with respect to the matter to be acted upon,returned without specification, such proxies will be voted according to the
recommendations of the Board of Directors. Those recommendations are described
later in favor
thereof. Any person giving the enclosed form ofthis statement.
You may revoke your proxy has the power to revoke itat any time before its exercise by voting in person at the meeting, or by givingsending
written notice of revocation to the Secretary of the CorporationCompany, or by signing and
delivering a proxy which is dated later, or, by attending the meeting and voting
in person.
At the date of this statement, the only matters that management intends to
present at the meeting are (1) the election of two Class I directors for a
three-year term expiring in 2001, (2) to consider and vote upon a proposal to
approve the Company's 1998 Management and Director Stock Option Plan, and (3)
the ratification of the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the current fiscal year.
If any timeother matters are properly brought before the meeting, the enclosed
proxy permits the stockholder to give discretionary authority to the persons
named in such proxy to vote the shares in their best judgment.
Under Delaware law and the Company's Restated Certificate of Incorporation,
if a quorum is exercised.
The holderspresent at the meeting (i) the two nominees for election as
directors who receive the greatest number of a majorityvotes cast for the election of
directors at the meeting by the shares present in interest of all Common Stock issued,
outstandingperson or by proxy and
entitled to vote are required toshall be present in person orelected directors and (ii) proposals 2 and 3 must be
representedapproved by proxy at the meeting in order to constitute a quorum for
transaction of business. The affirmative vote of the holders of at least a
majority of the shares of Common Stock present in person or
by proxy and entitled to vote on the matter. In the election of directors, any
action other than a vote for a nominee will have the practical effect of voting
against the proposals since it is one less vote in favor. Broker non-votes will
have no impact on such matter since they are not considered "shares present" for
voting purposes.
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PROPOSAL NO. 1:
ELECTION OF DIRECTORS
The Board of Directors currently consists of six people, two of whom are
members of management and four of whom are non-management directors. In
accordance with the Company's Restated Certificate of Incorporation, directors
are divided into three classes, each of which is composed as nearly as possible
of one-third of the directors. The terms of the Class III and Class II directors
and the term of the two Class I directors elected in 1998 will expire
respectively, on the date of the 1999, 2000, and 2001 Annual Meetings of
Stockholders, or until a successor has been elected and qualified. The nominees
for director are currently Board members. The names of the nominees for the
Board of Directors, as recommended by the Board of Directors, and the names of
directors whose terms will continue after the 1998 Annual Meeting, are listed
below. Shares represented by a properly executed proxy in the accompanying form
will be voted for such nominees unless authority is withheld. However,
discretionary authority is reserved to vote such shares in the best judgment of
the people named in the proxy in the event that any person or persons other than
the nominees listed below are to be voted on at the meeting due to the
unavailability of any nominees so listed. The nominees are not related to any
other director or Executive Officer of the Company or its subsidiaries.
NOMINEES FOR CLASS I DIRECTORS
TERM EXPIRING AT 2001 ANNUAL MEETING
DAVID LUCAS, 50, Director
Mr. Lucas has served as a director of the Company and General Nutrition,
Incorporated ("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. From 1983 to 1984 he was employed as
President of Margos, in Dallas, TX. Mr. Lucas has been employed by Bonita Bay
Properties, Inc. since 1984 and currently holds a position as Chairman.
W. HARRISON WELLFORD, 58, Director
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 Vice Chairman and a member of the Executive
Committee of Sithe Energies (one of the world's leading independent power
companies), and is a Founder of the National Independent Energy Producers. He is
a director and treasurer of the Friends of Art and Preservation in Embassies,
and a director of APBI Interactive Systems. Mr. Wellford was a partner at the
law firm of Olwine, Chase, O'Donnell & Weyher from 1989 through 1991; and prior
to that time period, he was a partner at the law firm of Wellford, Wegman and
Hoff from 1981 through 1988. In addition, Mr. Wellford was Executive Director of
the President's Reorganization Project and Executive Associate Director of the
Office of Management and Budget in the Executive Office of the President from
1977 to 1981. Mr. Wellford also served as a White House transition advisor to
Presidents-elect Carter (1976) and Clinton (1992) and Executive Branch
transition director in the Carter -- Reagan Presidential transition (1980-1981).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ABOVE DIRECTOR NOMINEES.
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CONTINUING DIRECTORS
CLASS III DIRECTORS
TERM EXPIRING AT 1999 ANNUAL MEETING
JERRY D. HORN, 60, Chairman of the Board and Director
Mr. Jerry Horn has served as Chairman of the Board of GNCI and General
Nutrition Corporation ("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., Cinnabon
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.
THOMAS R. SHEPHERD, 68, Director
Mr. Shepherd has served as a director of the Company since October 1991,
and as a director of GNI since October 1989. He has been engaged as a consultant
to Thomas H. Lee Company since 1986 and is currently a Managing Director. He is
also a director of Duro-Test Corporation, Health o meter Products, Inc., Anchor
Advanced Products, Inc., Sneaker Stadium, Inc., Computer Assisted Marketing,
Inc., and PNC New England. He is Executive Vice President of Thomas H. Lee
Advisors I and T.H. Lee Mezzanine II. Previously Mr. Shepherd was Chairman of
Amerace Corporation from 1986 to 1988. He was Executive Vice President of GTE
(Sylvania) Lighting Products Group from 1983 to 1986, President of North
American Phillips Commercial Electronics Corporation from 1981 to 1983 and
Senior Vice President and General Manager of GTE (Sylvania) Entertainment
Products Group from 1979 to 1981.
CLASS II DIRECTORS
TERM EXPIRING AT 2000 ANNUAL MEETING
WILLIAM E. WATTS, 45, President, Chief Executive Officer and Director
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 has 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.
RONALD L. ROSSETTI, 54, Director
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., a
director of Tier Corporation, Inc., a director of City Sports, Inc., and a
director of the Hamilton Companies, Inc. From 1976 through September 1994, Mr.
Rossetti was President, Chief Executive Officer and a director of Nature Food
Centres, Inc., which was acquired by the Company in 1994.
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INFORMATION CONCERNING THE BOARD OF DIRECTORS
During 1997, there were 5 meetings of the Board of Directors of the
Company. All of the Directors attended at least 75% of the aggregate of (i) the
total number of meetings of the Board of Directors, and (ii) the total number of
meetings held by committees of the Board of Directors on which they served. Each
non-employee Director receives compensation in the amount of $5,000 for each
fiscal quarter and $500 per meeting for attending meetings of the Board of
Directors of the Company.
COMMITTEES
The Board of Directors has established standing Audit and Compensation
Committees. The membership of each committee is usually determined at the
organizational meeting of the Board. The Board of Directors does not have a
nominating committee.
AUDIT COMMITTEE
Messrs. Lucas, Rossetti, Shepherd and Wellford serve as the Audit Committee
of the Board of Directors. The Audit Committee's functions include (i) reviewing
the Company's external and internal audit programs and the adequacy of the
internal accounting and financial controls, (ii) reviewing with the independent
auditors their report on the Company's financial statements, (iii) reviewing the
professional services proposed to be provided by the independent auditors to
consider the possible effect of such services on their independence, and (iv)
such other related services as the Board from time to time may request. The
Audit Committee met 3 times during the fiscal year ended January 31, 1998.
COMPENSATION COMMITTEE
Messrs. Lucas and Shepherd serve as the Compensation Committee of the Board
of Directors. The Compensation Committee's functions include administering the
Company's Executive Retirement Arrangement and Deferred Compensation Plan,
approving the compensation of key employees of the Company, and administering
the Company's Stock Option Plans. The Compensation Committee met 2 times during
the fiscal year ended January 31, 1998.
STOCK OWNERSHIP AND TRADING REPORTS
Section 16(a) of the Securities Exchange Act of 1934 (the "Act") requires
the Company's officers and persons who own more than 10% of the Company's Common
Stock to file with the Securities and Exchange Commission reports concerning
their ownership of the Company's Common Stock and changes in such ownership.
Copies of such reports are required to approvebe furnished to the proposal. Abstentions
are counted as present in determining whetherCompany. To the
quorum requirement is
satisfied and haveCompany's knowledge, based solely on a review of copies of such reports
furnished to the same effect as a vote againstCompany during or with respect to the proposed amendment.
The Corporation will bearCompany's most recent
fiscal year, all Section 16(a) filing requirements applicable to persons who
were, during the costmost recent fiscal year, officers or directors of the solicitation. It is expectedCompany
or greater than 10% beneficial owners of its Common Stock were complied with,
except that the solicitation will be made primarilythrough inadvertance one report involving one transaction concerning
an employee benefit plan was not reported on a timely basis by mail, but regular employees or
representativeseach of the
Corporation (none of whom will receive any extra
compensation for their activities) may also solicit proxies by telephone,
telegraphfollowing persons: W. Watts, J. Horn, T. Shepherd, D. Lucas, R. Rossetti, W.
Wellford, E. Kozlowski, L. Mancini, G. Horn, J. Sander, C. Larrimer, and in person and arrange for brokerage houses and other custodians,
nominees and fiduciaries to send proxies and proxy materials to their principals
at the expense of the Corporation. In addition, the Corporation has retained
Georgeson & Company, Inc., Wall Street Plaza, New York, New York 10005, for a
fee of $10,000, plus incidental and related expenses, to assist in providing
proxy materials to brokers, nominees, fiduciaries and individuals (other than
officers of the Corporation) holding sizable amounts of stock and in soliciting
proxies from them.
The Corporation's principal executive offices are located at 921 Penn
Avenue, Pittsburgh, Pennsylvania 15222, telephone number (412) 288-4600.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on September 27, 1996,
are entitled to notice of and to vote at the meeting. On that date the
Corporation had outstanding and entitled to vote shares of Common
Stock, par value $.01 per share. Each outstanding share of the Corporation's
Common Stock entitles the holder to one vote.
2J. Fox.
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OWNERSHIP OF STOCK BY DIRECTORS,DIRECTOR, NOMINEES FOR DIRECTOR,
EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL OWNERS
The following tables sets forth information with respect to the beneficial
ownership of shares of Common Stock of the Company as of September 1, 1996,March 31, 1998, by all
stockholders of the Company known to be beneficial owners of more than 5% of
such Common Stock, by each director and nominee, by each executive officer named
in the Summary Compensation Table below and by all directors and executive
officers as a group, as determined in accordance with Rule 13d-3(d) under the
Exchange Act:
NUMBER OF SHARES PERCENTAGE OF VOTING
OF COMMON STOCK* STOCK OUTSTANDING*
---------------- --------------------------------------
FMR Corp. 7,749,810(a) 9.56%
82 DevonshireForstmann-Leff Associates, Inc. 4,167,300(a) 5.1%
55 East 52nd Street
Boston, MA 02109-3614New York, NY 10055
Pilgrim Baxter & Associates, Ltd. 5,189,470(b) 6.35
825 Duportail Road
Wayne, PA 19087
T. Rowe Price Associates, Inc. 4,335,900(c) 5.3
100 East Pratt Street
Baltimore, MD 21202
David Lucas 78,521(b)72,087(d) *
Ronald L. Rossetti 10,000(c)36,887(e) *
Thomas R. Shepherd 0103,337(f) *
W. Harrison Wellford 38,000(d)64,887(g) *
Jerry D. Horn 139,180(e)99,142(h) *
William E. Watts 1,279,489(f) 1.5%1,244,740(i) 1.49
Louis Mancini 163,696(g)81,611(j) *
Edwin J. Kozlowski 208,879(h)221,037(k) *
John A. DiCecco 158,716(i)Gregory T. Horn 174,925(l) *
All Directors and Executive officers 2,315,925(j) 2.85%2,516,503(m) 3.05
of the Company as a group (13(16 persons)
- ---------
* Represents less than 1%.
(a) Based on information provided by FMR Corp.in a Schedule 13G filed with the Securities
and Exchange Commission ("SEC") on February 14, 1996.11, 1998. Includes 6,845,5101,266,750
shares beneficially owned by FidelityFLA Asset Management, & Research
Company,Inc.; 3,700 shares
beneficially by Forstmann-Leff Associates L.P.; and 904,300612,175 shares
beneficially owned by Fidelity Management Trust
Company. FMR Corp.FLA Advisers L.L.C. Forstmann-Leff Associates, Inc.
has sole voting power with respect to 431,500 shares and sole dispositive power with respect to 7,749,8102,288,375 shares and shared
dispositive power with respect to 1,878,925 shares.
(b) Based on information provided in a Schedule 13G filed with the SEC on
February 17, 1998. Includes 4,529,200 shares beneficially owned by PBHJ
Growth Fund. Pilgrim Baxter and Associates Ltd. has sole dispositive power
with respect to 5,189,470 shares.
(c) Based on information provided in a Schedule 13G filed with the SEC on
February 12, 1998.
(d) Includes 8,321 shares of Common Stock which may be deemed to be beneficially
owned by Mr. Lucas through his wife who is a partner in Harbour Investments
Ltd. Mr. Lucas disclaims beneficial ownership of such shares. Excludes 6,650
shares held by 2 trusts for his children. Mr. Lucas disclaims beneficial
ownership of such shares. (c) Includes 5,00016,377 option shares which Mr. Lucas has
the right to acquire within 60 days.
(e) Includes 26,377 option shares which Mr. Rossetti has the right to acquire
within 60 days.
(d)(f) Includes 10,00021,377 option shares which Mr. Shepherd has the right to acquire
within 60 days.
(g) Includes 31,377 option shares which Mr. Wellford has the right to acquire
within 60 days.
(e)(h) Includes 29,83510,978 option shares which Mr. Jerry Horn has the right to acquire
within 60 days.
(f)(i) Includes 702,5841,085,282 option shares which Mr. Watts has the right to acquire
within 60 days.
(g)6
9
(j) Includes 54,41233,912 option shares which Mr. Mancini has the right to acquire
within 60 days.
(h)(k) Includes 95,504146,114 option shares which Mr. Kozlowski has the right to acquire
within 60 days.
(i)(l) Includes 81,562138,749 option shares which Mr. DiCeccoGregory Horn has the right to
acquire within 60 days.
(j)(m) Includes 1,045,3921,749,799 option shares which such directorsDirectors and executive
officersExecutive Officers
have the right to acquire within 60 days.
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INFORMATION CONCERNING THE BOARD OF DIRECTORS
The current members of the Board of Directors of the Company are as
follows: Jerry D. Horn, William E. Watts, David Lucas, Thomas R. Shepherd, W.
Harrison Wellford and Ronald L. Rossetti, Mr. Lucas was elected to the Board of
Directors in July, 1996 to fill the vacancy caused by the resignation of Thomas
H. Lee. Each non-employee director, except for Mr. Rossetti, receives
compensation in the amount of $5,000 for each fiscal quarter and $500 per
meeting for attending meetings of the Board of Directors of the Company.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Messrs. Lee, Shepherd and Wellford served as members of the Compensation
Committee during fiscal 1996. None of the named individuals were officers or
employees of the Company or any of its subsidiaries during fiscal 1996.
The Company was formed by Thomas H. Lee Company ("THL") and certain members
of the Company's senior management to acquire General Nutrition, Incorporated
("GNI") in August 1989 (the "Acquisition"). In connection with the Acquisition,
the Company and THL entered to a five-year management agreement (the "THL
Management Agreement") pursuant to which THL was entitled to receive up to
$600,000 per year for management and other consulting services rendered to the
Company. After the initial five-year term, the THL Management Agreement was
automatically renewable on an annual basis. The THL Management Agreement was
terminated effective as of February 13, 1996. During 1995, GNI paid THL $250,000
pursuant to the THL Management Agreement.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
administers the Company's executive compensation program. The Committee is
composed exclusively of non-employee directors. In its deliberations, the
Committee takes into account the recommendations of appropriate Company
officials.
The goals of the Company's executive compensation program are to:
1. Pay competitively to attract, retain and motivate a highly competent
executive team;
2. Tie individual total compensation to individual and team performance and
the success of the Company; and
3. Align executives' financial interests with stockholder value.
The Company's program utilizes a combination of base salary, annual
incentive (bonus) awards based on the achievement of performance objectives, a
minimum stockholding requirement for members of senior management, and stock
options. In 1993 the Internal Revenue Code was amended to limit the deduction a
public company is permitted for compensation paid in 1994 and thereafter to the
chief executive officer and to the four most highly compensated executive
officers, other than the chief executive officer. Generally, amounts paid in
excess of $1 million to a covered executive, other than performance-based
compensation, cannot be deducted. In order to qualify as performance-based
compensation under the newcurrent tax law, certain requirements must be met,
including approval of the performance measures by the stockholders. The
Committee intends to consider ways to maximize deductibility of executive
compensation, while retaining the discretion the Committee considers appropriate
to compensate executive officers at levels commensurate with their
responsibilities and achievements.
BASE SALARIES
Base salaries are targeted to be moderate, yet competitive in relation to
salaries commanded by those in similar positions with other companies. In the
course of its deliberations the Committee reviews management recommendations for
executive officers' salaries, and examines data assembled by the Company from
surveys of compensation paid to executives with similar responsibilities in
major U.S. retail companies, including 4
7
specialty retailers. Individual salary
determinations are based on experience, levels of responsibility, sustained
performance and comparison to peers inside and outside the Company. The base
salaries of Messrs. Horn and Watts are specified in employment agreements
described below entered into initially in 1989 and amended and restated in 1990, 1993, 1994 and 1995, which provide1997.
Mr. Watts' employment agreement provides for annual adjustments to a base salary
for changes in the cost of living.
ANNUAL INCENTIVE AWARDS
Annual incentive awards are designed to reward personal contributions to
the success of the organization. In conjunction with the approval of the
Company's annual operating plan by Mr. Watts, the President and Chief Executive
Officer of the Company, performance goals are established for individual
officers based on aspects of Company performance related to the particular
officers' responsibilities and in some cases, on individual achievements. These
goals are reviewed and approved by the Compensation Committee early in each
fiscal year. At the end of the year, the Committee evaluates actual performance
and awards incentive compensation in the form of cash bonuses (or, in some
cases, stock options) based on the achievement of the performance goals.
Incentive awards to the President and Chief Executive Officer, the Chairman and
the other three most highly compensated executive officers are shown in the
"Bonus" column of the Summary Compensation Table, which follows this report.
STOCK OPTIONS
Stock options7
10
LONG-TERM INCENTIVE PROGRAMS
The Company's Long-term Incentive Programs accomplish the third
compensation objective: to align the interests of executive officers with
stockholder value.
The Committee has established a minimum stockholding requirement for
members of senior management. All officers must own Common Stock of the Company
equal to one times their annual salary. If the officer's holdings are less than
the minimum requirement then any cash bonuses otherwise paid to him or her shall
be paid instead 50% in cash and 50% in Common Stock until they meet the
stockholding requirement. This requirement is designed to align the interests of
senior management with those of the stockholders.
The 1996 Management and Director Stock Purchase Plan offers directors and
senior management, officers, and other key employees selected by the Committee,
the opportunity to purchase Company Stock at a discount and to leverage that
purchase with a matching Company loan which is used to purchase additional
shares. This plan enables participants to stand alongside shareholders in both
risk and reward, and offers participants financial incentives based on long-term
stock performance. This means that the Company's Common Stock must perform well
for all shareowners in order for the purchase plan to pay off for its
participants.
The Company's compensation objectives are also accomplished through stock
options. The number of stock options granted by the Stock Option CommitteeCompany is determined by the
recipients' position, grade level and performance during the previous year, with
participants of higher positions and grade levels being eligible to receive more
options than those of lower positions and grade levels. The determination as to
the size of stock option grants to executive officers, including Mr. Watts,
reflect the subjective judgment of the Stock Option
Committee. The participant's right to
exercise stock options vestsvest over a period of years and in some instances such
vesting is tied to the achievement of specified performance objectives. The
number of stock options available for grant under the Company's current stock
option plan, the 1996 Management and Director Stock Option Plan, is down to
67,605, as of January 31, 1998. Accordingly, the stockholders are being asked to
approve the 1998 Management and Director Stock Option Plan in order to permit
the Company to achieve its compensation objectives.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The compensation paid to Mr. Watts as President and Chief Executive Officer
for fiscal year ending February 3, 1996January 31, 1998 was based on the salary specified in his
employment contract described below, togetherbelow. Mr. Watts' Employment Agreement with the
Company provides for a cash incentive award inbase salary of $929,700 per year.
During the amountfiscal year ended January 31, 1998, Mr. Watts was granted
options to purchase pursuant to the 1996 Management and Director Stock Option
Plan, an aggregate of $300,000 which was made by the Committee in recognition250,000 shares of the Company's performanceCommon Stock comprised as
follows: 100,000 shares at $22.32 per share; 75,000 at $26.78 per share; and
75,000 at $32.14 per share. Fifty percent of these options vest on a daily basis
over a four-year period from the date of grant and the remaining fifty percent
vest in fiscal 1996 andtwenty five percent increments over a four year period from the date of
grant if the market price of the Company's Common Stock appreciates twenty
percent per year from the date of grant. In addition, in 1997 Mr. Watts' contributionsWatts was
permitted to purchase pursuant to the 1996 Management and Director Stock
Purchase Plan, 44,351 shares of the Company's success.Common Stock at $15.88 per share
which represents an average discount of $3.97 per share from the market price at
the time of the award.
The terms of the Employment Agreement, as well as the options granted under
the 1996 Management and Director Stock Option Plan and the right to participate
in the 1996 Management and Director Stock Purchase Plan are all reflective of
the committee's judgment as to the contribution Mr. Watts has made to the
success of the Company.
COMPENSATION COMMITTEE
Thomas H. Lee
Thomas R. Shepherd
W. Harrison Wellford
5David Lucas
8
811
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows the total amount and long-term compensation of
the Chief Executive Officer and the other four most highly compensated executive
officers of the Company.
ANNUAL COMPENSATION
LONG TERM
COMPENSATION
AWARDS
-------------------
OTHER OPTION ALL OTHER
NAME AND BONUS ANNUAL SHARES COMPENSATION*COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) ($)(1) COMPENSATION($)COMPENSATION(2)* GRANTED(2) ($)GRANTED (3)
- --------------------------------------------- ---- ---------- -------------- --- ---------------- ------------- -------------------- ---
William E. Watts 1995 $636,637 $300,0001997 $957,558 $ 6,373 764,000 $ 9,4780 $349,750 250,000 $397,988
President & CEO 1994 599,441 200,000 13,5631996 714,752 0 11,529
1993 546,028 250,000 6,434 800,000 11,223382,347 500,000 516,341
1995 636,637 300,000 6,373 76,000 9,478
Jerry D. Horn 1997 322,405 0 28,151 30,000 178,608
Chairman 1996 359,672 0 171,657 100,000 21,386
1995 351,358 0 6,373 48,000 9,265
Chairman 1994 344,645 0 4,401 0 11,319
1993 334,251 0 6,255 114,000 11,053
Louis Mancini 1997 249,808 153,000 88,887 160,000 115,422
of GNC 1996 246,038 15,000 76,686 265,000 20,348
1995 221,231 55,000 6,373 142,000 10,222
President of GNC 1994 200,346 35,000 6,358 4,000 11,817
1993 181,500 124,481 6,434 100,000 4,789
Edwin J. Kozlowski 1997 240,000 60,000 46,303 160,000 127,131
Executive Vice 1996 227,000 28,000 115,636 200,000 19,608
President 1995 202,000 50,000 6,373 102,000 9,766
Executive Vice President 1994 181,500 37,500 6,358 2,000 11,817
of GNI 1993 163,500 50,000 6,434 60,000 12,830
John A. DiCeccoGregory T. Horn 1997 222,552 105,500 53,803 160,000 106,323
Chief Marketing 1996 186,301 6,000 96,029 195,000 99,284
Officer 1995 171,423 14,500 6,373 60,000 9,478
Senior Vice President 1994 156,500 41,236 6,358 2,000 11,529
of GNI 1993 145,539 120,596 6,434 60,000 10,022104,195 69,358 4,445 52,000 58,150
- ---------
* The above-named Executive Officers received other annual compensation in the
form of perquisites, the amount of which did not exceed reporting
thresholds.
(1) Incentive compensation is based on performance in the year shown but
determined and paid the following year. For example, bonuses for 19951997 are
based on performance in 19951997 and are measured and paid in 1996.1998.
(2) The total number of options heldFor 1997 and 1996, includes amounts attributable as compensation for the
discount from the market price on Common Stock purchased under the Company's
1996 Management and Director Stock Purchase Plan by the persons listed in
thisthe table, asrespectively, in the following amounts: Mr. Watts $281,140 and
$299,916; Mr. Jerry Horn $21,869 and $165,628; Mr. Mancini $82,580 and
$73,657; Mr. Kozlowski $39,997 and $109,999; and Mr. Gregory Horn $47,496
and $90,000. For 1997 and 1996, respectively, also includes for Mr. Watts
$62,303 and $76,402 related to personal use of the close of the fiscal year ended February 3, 1996 is as follows and
reflects the adjustment in the number of shares and exercise price relating
to the Company's 2 for 1 stock split on October 17, 1995: Mr. Watts
1,576,048 shares; Mr. Horn 172,233 shares; Mr. Mancini 221,712 shares; Mr.
Kozlowski 214,652 shares; and Mr. DiCecco 157,852 shares.Company aircraft.
(3) Includes amounts received by the persons listed in this table for (a)
"matching contributions" under the Company's Executive Retirement
Arrangement for 1995, 19941997, 1996 and 1993,1995, respectively, in the following amounts:
Mr. Watts $9,070, $11,121$9,734, $11,683, and $10,815;$9,070; Mr. Jerry Horn $7,465, $9,519$7,721, $10,034, and
$9,253;$7,465; Mr. Mancini $9,070, $11,121$9,734, $11,683, and $10,815;$9,070; Mr. Kozlowski $9,070, $11,121$9,734,
$11,683, and $12,134;$9,070; and Mr. DiCecco $9,070, $11,121Gregory Horn $4,763, $9,209, and $9,614;$3,355; and
(b) the dollar value of life insurance premiums for 1995, 19941997, 1996 and 1993,1995,
respectively, for the benefit of the persons listed in this table paid by
the Company in the following amounts: Mr. Watts $696, $408, $408, $408,and $408; Mr.
Jerry Horn $1,800,$2,808, $1,800, and $1,800; Mr. Mancini $1,152, $696$1,152, and
$696;$1,152; Mr. Kozlowski $696, $696, and $408;$696; and Mr. DiCecco $408, $408Gregory Horn $81, $75,
and $408.$54. Also includes loan forgiveness in 1997 for the persons listed in
this table, on Company loans matching 50% of such executives stock purchases
pursuant to the 1996 Management and Director Stock Purchase Plan; with loan
forgiveness in the following amounts occurring because the market price of
the Company's Common Stock appreciated by at least 25% over the base market
price of the stock during
9
12
such fiscal year: Mr. Watts $387,558; Mr. Jerry Horn $168,079; Mr. Mancini
$104,536; Mr. Kozlowski $116,701; and Mr. Gregory Horn $101,479. Under the
above Stock Purchase Plan, matching purchase loans were extended to plan
participants with interest at 6% per annum and paid quarterly. The largest
aggregate amount of indebtedness outstanding during 1997 and the latest
outstanding balance, respectively, for each of the following named Executive
Officers is as follows: Mr. Watts $929,500, $681,042; Mr. Jerry Horn
$331,257, $198,436; Mr. Mancini $250,000, $190,625; Mr. Kozlowski $240,000,
$183,750; Mr. Gregory Horn $220,000, $170,000; and for each of the following
directors: Mr. Lucas $38,500, $27,500; Mr. Rossetti $38,500, $27,500; Mr.
Shepherd $38,500, $27,500; and Mr. Wellford $38,500, $27,500. For 1996,
includes for Mr. Watts a one-time payment in the amount of $486,000 made in
connection with the 1996 amendment of his Employment Agreement. For 1995,
includes for Mr. Gregory Horn $54,741, as reimbursement of certain
relocation expenses.
OPTIONS GRANTS IN 19951997
Information concerning 19951997 grants to the President and Chief Executive
Officer and the other four most highly compensated executive officers is
provided below.
6
9
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
INDIVIDUAL GRANTS----------------------------------------------------------- ASSUMED ANNUAL RATES OF
----------------------------------------------------------------------- STOCK
% OF TOTAL EXERCISE MARKET PRICE APPRECIATION FOR
OPTIONS OPTIONS OR MARKET PRICE AT OPTION TERM (2)
GRANTED GRANTED TO BASE PRICE AT DATE OF EXPIRATION ------------------------------------------------------
NAME (#)(1) EMPLOYEES ($/SH) OF GRANT DATE 0% ($) 5% ($) 10% ($)
- ----------------------------- ---------- ------------ ------------ ---------- ---------- -------------- ------ --------- ------ ----- ---- -- ------ -------
William E. Watts 64,000 82.3%100,000 16% $ 1.25 $ 21.15625 8/24/05 $1,274,000 $2,125,523
700,000 37.4 11.88 11.88 22.32 $22.32 5/2/27/0507 $0 $1,403,693 $3,557,233
75,000 12 26.78 26.78 6/25/07 0 5,229,8881,263,135 3,201,032
75,000 12 32.14 32.14 11/13/07 0 1,515,950 3,841,716
Jerry D. Horn 48,000 2.5 11.88 11.88 30,000 5 22.32 22.32 5/2/27/0507 0 358,621421,108 1,067,170
Louis Mancini 2,000 2.6 1.25 19.375 1/26/05 36,250 60,620
140,000 7.5 11.88 11.88 40,000 6 22.32 22.32 5/2/27/0507 0 1,045,978561,477 1,422,893
40,000 6 26.78 26.78 6/25/07 0 673,672 1,707,217
40,000 6 32.14 32.14 11/13/07 0 808,507 2,048,915
Edwin J. Kozlowski 2,000 2.6 1.25 19.375 1/26/05 36,250 60,620
100,000 5.3 11.88 11.88 40,000 6 22.32 22.32 5/2/27/0507 0 747,127
John A. DiCecco 60,000 3.2 11.88 11.88 2/27/05561,477 1,422,893
40,000 6 26.78 26.78 6/25/07 0 448,276
NAME 10% ($)
- ---------------------- -----------
William E. Watts $ 3,431,927
13,253,562
Jerry D.673,672 1,707,217
40,000 6 32.14 32.14 11/13/07 0 808,507 2,048,915
Gregory T. Horn 908,816
Louis Mancini 98,008
2,650,712
Edwin J. Kozlowski 98,008
1,893,366
John A. DiCecco 1,136,02040,000 6 22.32 22.32 5/2/07 0 561,477 1,422,893
40,000 6 26.78 26.78 6/25/07 0 673,672 1,707,217
40,000 6 32.14 32.14 11/13/07 0 808,507 2,048,915
- ---------
(1) TheseFifty percent of the shares subject to the options aregranted to the other
executive officers and employees vest in equal daily increments over four
years, and the remaining fifty percent of such option shares vest upon the
achievement of performance objectives based upon appreciation of the market
price of the Company's Common Stock over four years. The options have a ten
year term; but the options which vest on the basis of performance objectives
become fully vested.vested for a 30 day period following the close of the sixth
fiscal year after the date of grant, if the performance objectives have not
been met.
(2) The dollar amounts under these columns are the resultresults of calculations at
assumed rates of appreciation of 5% and 10% by the Securities and Exchange
Commission and, therefore, are not intended to forecast possible future
appreciation, if any, in the price of the Common Stock. No gain to the
optionees is possible without an increase in price of the Common Stock,
which will benefit all shareholders proportionately.
10
13
AGGREGATED OPTION EXERCISES AND VALUES AT FISCAL YEAR-END
The following information is furnished for the fiscal year ended February
3, 1996January
31, 1998 with respect to the stock options held by the Company's President and
Chief Executive Officer and each of the four other most highly compensated
executive officers of the Company and its subsidiaries.
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FEBRUARY 3, 1996 FEBRUARY 2, 1996(1)JANUARY 30, 1998 JANUARY 30, 1998(1)
ACQUIRED ON VALUE ----------------------------- -------------------------------------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------- ------------ ------------ ----------- ------------- ----------- -------------
William E. Watts 290,000 $4,877,050 760,239 815,809 $ 8,106,395 $ 9,480,561545,000 $9,798,724 1,211,196 499,184 $29,037,561 $8,136,929
Jerry D. Horn 250,000 3,186,302 33,442 138,791 342,034 2,105,753148,048 2,746,437 39,827 80,871 828,917 1,550,743
Louis Mancini 53,000 1,024,235 41,602 180,110 428,052 1,912,633260,000 3,432,687 67,609 341,109 1,225,070 4,251,776
Edwin J. Kozlowski 35,957 644,178 104,793 109,859 1,091,463 1,361,438
John A. DiCecco 40,000 738,485 76,918 80,934 911,246 1,150,755124,952 2,232,419 160,756 303,260 3,233,637 3,474,646
Gregory T. Horn 60,000 932,335 139,382 304,818 2,722,465 3,539,689
- ---------
(1) This amount is the aggregate of the number of options multiplied by the
difference between the closing price of the Common Stock on the NASDAQ
National Market on February 2, 19961998 ($2236.625 per share), minus the option
exercise price of $1.25 per share for shares granted under the 1989 and 1991
stock option plans, and $10.8438as applicable, $10.125 or $34.625 for shares granted
under the 1992 stock option plan, $10.844 for shares granted under the 1993
stock option plan, $11.875 or $19.375 for shares granted under the 1995
stock option plan and $15.50, $16.875, $18.60, $22.32, $26.78 or $32.14 for
shares granted under the 1996 stock option plan.
EMPLOYMENT AGREEMENTAGREEMENTS
All officers of the Company, GNI and GNC serve at the discretion of the
Board of Directors. GNI has entered into employment agreements dated as of March
24, 1989 with each of Messrs. Jerry Horn and Watts. The employment agreements
were amended and restated on June 16, 1997 and further amended on January 23,
1998. Mr. Horn's agreement, as amended, provides that he shall serve as the
Chairman of the Board of GNI until January
31, 1998February 1, 2002 at a base salary of $331,265 per annum (subject to adjustment$300,000
for future changes in the cost of living),1998, $250,000 for 1999, $200,000 for 2000, $150,000 for 2001 and shall thereafter be retained by GNI
as a consultant$150,000
for one year at an annual fee of $100,000, during which year Mr.
Horn shall be prohibited from competing with GNI by engaging in any capacity in
a business substantially similar to GNI's business, soliciting any customer of
GNI on behalf of a competitor or attempting to persuade any employee of GNI to
terminate his or her employment relationship in order to enter into competitive
employment.2002. Mr. Watts' agreement, as amended, provides that he shall serve as
President 7
10
and Chief Executive Officer of GNI until February 1, 20003, 2001 at a base
salary of $599,835$929,700 per annum (subject to adjustment for future changes in the
cost of living) and as part of his compensation Mr. Watts is entitled to
personal use of the Company's airplane for up to 75100 hours per year. In addition, Mr. Watts will
receive a lump sum retention payment in the amount of $1.5 million for his
continued services through the term of his employment agreement. Under their
respective employment agreement, each of Messrs. Horn and Watts is required to
maintain the confidentiality of GNI information for two years following the
termination of his employment, and is entitled to certain other benefits and
reimbursement of expenses and to participate in the Company's 1989 Stock Option
Plan and 1995 Stock Option Plan.stock option
plans.
Under such employment agreements, each of Messrs. Jerry Horn and Watts is
entitled to resign in his sole discretion at any time upon one month's written
notice, but will be entitled to certain severance benefits only if (i) GNI
terminates his employment other than for "cause" prior to the respective dates
set forth above, or (ii) there occurs a material diminution in such executive's
duties or responsibilities at GNI. 8In the event of a "change in control" (as
defined in the agreement), Mr. Horn is entitled to the payment of $1,000,000 and
Mr. Watts is entitled to receive three times his then current base salary.
Under resolutions adopted by the Board of Directors of the Company and its
subsidiaries, all vice presidents and above, including the named Executives
Officers, are entitled to receive one times their salary as a bonus in the event
of a change in control.
11
1114
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Messrs. Lucas and Shepherd served as members of the Compensation Committee
during fiscal 1998. None of the named individuals were officers or employees of
the Company or any of its subsidiaries during fiscal 1998.
PERFORMANCE GRAPH
The graph set forth below compares the change in the Company's cumulative
total shareholder return on the Common Stock (as measured by dividing the
difference between the Company's share price at the end and the beginning of the
period indicated by the share price at the beginning of the period indicated)
with the cumulative total return of the NASDAQ Composite Market Index and the
Dow Jones World Industry Groups U.S. Specialty Retailers Index for the period
commencing with the Company's initial public offering on January 21, 1993. The
graph assumes $100 was invested on January 21, 1993 in the Company's Common
Stock and in the indexes and also assumes the reinvestment of dividends.
General Nu- Dow Jones
Nutrition U.S.
Measurement Period trition Com-Companies, NASDAQ U.S. Spe-Specialty
(Fiscal Year Covered) panies, Inc. Composite cialty Retail
1/21/93 100 100 100
2/5/93 142 100 102
2/4/94 353 111 89
2/5/9596 314 110 96
2/3/9697 550 153 88
2/1/97 453 197 101
1/31/98 902 231 147
The Board of Directors and its Compensation Committee recognize that the
market price of stock is influenced by many factors, only one of which is
Company performance. The stock price performance shown on the graph is not
necessarily indicative of future price performance.
9CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1994 the Company acquired all of the outstanding Common Stock of Nature
Food Centres, Inc. ("NFC") for approximately $59.4 million. Ronald L. Rossetti,
President and Chief Executive Officer of NFC, received in the transaction
approximately $28 million for his NFC Common Stock and $2,323,000 in
consideration of the termination of various contractual relationships between
Mr. Rossetti and NFC. In addition, the Company entered into a consulting and
non-competition agreement with Mr. Rossetti pursuant to which, for a three-year
period ending in September 1997, Mr. Rossetti has agreed to serve as a
consultant to the Company's subsidiary, NFC, in consideration of a consulting
fee of approximately $176,000 per year; and pursuant to which, for a six year
period ending in September 2000, Mr. Rossetti has agreed not to compete with the
Company in consideration of an aggregate fee of $900,000, payable in seventy-two
equal installments of $12,500 per month. In addition, the consulting agreement
provides that Mr. Rossetti shall be entitled to serve as a member of the Board
of Directors of the Company for three years following the transaction and shall
12
12
1996 LONG TERM INCENTIVE PROGRAM15
be entitled to participate, as an independent director, in the 1994 Stock Option
Plan for Non-Employee Directors established by the Company. Mr. Rossetti became
a director of the Company in September 1994 and received an option covering
20,000 shares of the Company's Common Stock pursuant to the 1994 Stock Option
Plan for non-employee directors at an exercise price of $11.46875 per share, the
market price on the date of grant.
PROPOSAL NO. 2
APPROVAL OF THE COMPANY'S
1998 MANAGEMENT AND DIRECTOR STOCK OPTION PLAN
There will be presented at the meeting a proposal to approve the Company's
1996 Long Term Incentive Program, which includes the 19961998 Management and Director Stock PurchaseOption Plan (the "1996 Stock Purchase"1998 Plan"), andwhich was
adopted by the Board of Directors on January 23, 1998, subject to stockholder
approval. The number of stock options available for grant under the Company's
current stock option plan, the 1996 Management and Director Stock Option Plan,
(the "1996is down to 67,605, as of January 31, 1998. Accordingly, the stockholders are
being asked to approve the 1998 Management and Director Stock Option Plan"). Both plans
were adopted byPlan in
order to permit the Board of Directors on August 22, 1996, subjectCompany to stockholder approval.achieve its compensation objectives.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS APPROVE THE 1996 LONG
TERM INCENTIVE PROGRAM, INCLUDING THE 19961998
MANAGEMENT AND DIRECTOR STOCK PURCHASE PLAN AND THE 1996 OPTION PLAN.
19961998 MANAGEMENT AND DIRECTOR STOCK PURCHASEOPTION PLAN
The 1996 Stock Purchase1998 Plan is intended to encourage senior management of
the Company and its affiliates and directors of the Company to own sharesownership of the Company's stock and thereby to align their interest more closely with the
interests of the other shareholders of the Company, to encourage the highest
level of senior management and director performance, and to provide a financial
incentive that will help attract and retain the most qualified senior management
and directors. Set forth below is a summary of the principal provisions of the
1996 Stock Purchase Plan. Such summary does not purport to be a complete
statement of the plan's terms. A copy of the entire 1996 Stock Purchase Plan is
available from the Secretary of the Company upon request.
SHARES SUBJECT TO THE 1996 STOCK PURCHASE PLAN
One million shares of the Common
Stock of the Company may be issued
pursuant to the 1996 Stock Purchase Plan. The shares issued pursuant to the 1996
Stock Purchase Plan shall be shares of the Company's authorized but unissued
Common Stock, or shares of Common Stock reacquired by the Company and held in
its treasury. The number of shares issuable under the 1996 Stock Purchase Plan
is subject to appropriate adjustment in the event of a stock split, a
subdivision or consolidation of shares of Common Stock, capital adjustments or
payments of stock dividends or outstanding shares of Common Stock effected
without receipt of consideration by the Company.
ADMINISTRATION
The 1996 Stock Purchase Plan shall be administered by the Board of
Directors or by a committee (the "Committee") of not less than two members
appointed by the Board. The Board of Directors, or the Committee if appointed by
the Board, is vested with full authority to make, administer and interpret such
equitable rules and regulations regarding the 1996 Stock Purchase Plan as it may
deem advisable. Determinations by the Board of Directors, or the Committee if
appointed by the Board, as to the interpretation and operation of the 1996 Stock
Purchase Plan shall be final and conclusive.
Subject to stockholder approval, the 1996 Stock Purchase Plan shall
continue in effect through August 22, 2006, provided, however, that the Board of
Directors shall have the right to terminate the 1996 Stock Purchase Plan at any
time. In the event of the expiration of the 1996 Stock Purchase Plan or its
termination, all options then outstanding under the 1996 Stock Purchase Plan
shall automatically be cancelled and the entire amount credited to the account
of each participant thereunder shall be refunded to each such participant. In
addition, the Board of Directors may amend the 1996 Stock Purchase Plan at any
time without the consent of the participants, but no such amendment shall
adversely affect options previously granted under the 1996 Stock Purchase Plan
and no such amendment (without approval by the Company's stockholders) may
increase the total number of shares of Common Stock which may be purchased by
all participants. The termination of the 1996 Stock Purchase Plan is not to be
deemed an action which adversely affects options previously granted under the
1996 Stock Purchase Plan.
ELIGIBILITY TO PARTICIPATE
The individuals who are eligible to participate in the 1996 Stock Purchase
Plan are directors, executives, officers, and other key employees of the Company
and its subsidiaries. Participants are selected by the Board or the Committee from among
directors, officers and other key employees of the Company and its subsidiaries,
who,
10
13
in the judgment of the Board or the Committee, have the capacity to contribute
significantly to the long-term performance and growth of the Company.
OPERATION OF THE 1996 STOCK PURCHASE PLAN
Under the 1996 Stock Purchase Plan, participants will be permitted to
purchase shares of the Company's Common Stock at a price equal to 80% of the
average of the high and low sale prices of the Company's Common Stock for the
first five trading days of the first three calendar months of each fiscal
quarter. Such purchase shall be effected during the first five trading days of
the Company's fiscal quarter immediately succeeding the quarter used for
purposes of calculating the purchase price. The maximum number of shares which
participants will be permitted to purchase under the 1996 Stock Purchase Plan is
twice their annual compensation or director fees, as the case may be. The
Compensation Committee of the Board established a minimum stockholding
requirement for members fo senior management with the initial guideline set by
the Committee of one times annual salary, which initial guideline would be in
effect for at least two years and thereafter reviewed by the Committee every two
years thereafter. To participate in the 1996 Stock Purchase Plan a Participant
agrees that to the extent that the Participant has not met the minimum
stockholding requirements set forth by the Committee, then incentive
compensation otherwise paid to the employee in cash will be paid instead 50% in
cash and 50% in Common Stock until the minimum stockholding requirement is met.
Such limit shall be periodically adjusted to take account of increases in such
annual salary or director fees.
Participants will be permitted to make sales from time to time of shares of
Common Stock purchased under the 1996 Stock Purchase Plan, provided that no such
sale of shares of Common Stock purchased thereunder will be permitted which
would reduce the total number of shares of Common Stock of the Company owned by
such participant to a market value at the time of such sale less than such
participant's annual salary plus the amount of any loan outstanding to such
participant under the 1996 Stock Purchase Plan (unless the participant has left
the Company or the Board or Committee approves a specific "hardship"
withdrawal).
The Company may extend loans to participants for up to 50% of the amount
necessary to purchase the shares under the 1996 Stock Purchase Plan and the
applicable withholding tax, provided that no participant shall borrow more than
an amount equal to such participant's annual base salary. Such loans may be used
not only for the purchase of shares pursuant to the 1996 Stock Purchase Plan,
but also to defray taxes related to the purchase of such shares under the plan
at a discount from fair market value. Any such loans would bear interest at 6%
per annum, such interest to be payable on a quarterly basis. The loan would be
secured by the stock purchased with the proceeds of the loan and the loan would
be payable in full in the event that the employee should leave the employ of the
Company. The Company will forgive the principal of the loan in the event that
the market price of shares of the Company's Common Stock appreciates by 25% or
more in each of the four years commencing on the date of grant of such loan.
Such appreciation will be deemed to have been achieved if the average of the
trading price of the Company's Common Stock during any consecutive 15 trading
days reaches the level of appreciation required during such year. The loan would
be forgiven at the rate of 25% of the original principal amount thereof in each
year of the four year period commencing on the date the loan was granted in
which the required level of appreciation is achieved. The stock appreciation
hurdles to be met in order for the purchase loan to be forgiven are set forth
below:
LOAN
TARGET BALANCE
YEAR STOCK PRICE FORGIVEN
- ---- ----------- --------
1 $ 19.50 25%
2 $24.375 25%
3 $30.468 25%
4 $38.085 25%
In the event that the required level of stock appreciation is not met in a
given year, the portion of the loan which would have been forgiven in that year
may be forgiven in a subsequent year during such four year period if in such
subsequent year the required level of appreciation for such subsequent year is
met. The amount
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forgiven shall include accrued interest for the quarter in which such
forgiveness occurs. To the extent that such loan is not forgiven, the loan will
be required to be repaid at the earlier of termination of employment or
expiration of the four year period from the date of the loan.
1996 OPTION PLAN
The 1996 Option Plan is intended to encourage ownership of the Company's
stock 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. Set forth below is a
summary of the 1998 Plan's principal provisions of the 1996 Option Plan.terms. Such summary does not purport to be
a complete statement of the plan's1998 Plan's terms. A copy of the entire 1996 Option1998 Plan
is availablemay be obtained from the Secretary of the Company upon request.Company.
1998 PLAN ADMINISTRATION AND AMENDMENTS
The 1996 Option1998 Plan is administered by the Board of Directors or by a
committeethe
Compensation Committee (the "Committee") consisting of two or more members of
the Board of Directors appointed by the Board. The current members of the
Committee are: Thomas R. Shepherd, Chairman and David Lucas. The Company may
terminate the 1996 Option1998 Plan at any time or make such modifications or amendments as
it deems advisable, provided that without the approval of the holders of at
least a majority of the voting stock of the Company present in person or by
proxy at a duly held stockholders'stockholders meeting, the Company may not 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 1996 Option1998
Plan or change the criteria for the vesting of options. Further, termination,
modification or amendment of the 1996 Option1998 Plan shall not, without the consent of the
optionees,optionee, affect such optionee's rights under an option granted to him or her.
Unless sooner terminated, the 1996 Option1998 Plan shall terminate on August
22, 2006,January 23,
2008, ten (10) years from the date upon which it was adopted by the Board of
Directors.
ELIGIBILITY TO PARTICIPATE
The individuals who are eligible to receive options under the 1996 Option1998 Plan are
directors, executives, officers, and other key employees of the Company or any
subsidiary.
Options granted to eligible individuals may be either non-qualified
options, or, if to employees, incentive stock options within the meaning of
Section 422 of the Internal Revenue Code (the "Code").
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The Board or the Committee determines the persons to whom options shall be
granted, the number of shares to be covered by such options and the terms and
vesting schedule for such options, all in conformity with the provisions of the
1996 Option1998 Plan. In determining the eligibility of an individual to be granted an
option and the number of shares to be subject to purchase under such option, the
Board or the Committee takes into account the position and responsibilities of
the individual being considered, his or her present and potential contributions
to the success of the Company or its subsidiaries and such other factors as the
Board or the Committee deems relevant.
SHARES SUBJECT TO THE 1996 OPTION1998 PLAN
A total of 5,000,0002,500,000 shares of Common Stock of the Company has been
reserved for issuance under the 1996 Option1998 Plan, subject to adjustment in the event of
stock dividends, stock splits, mergers, consolidations or other
recapitalizations or reorganizations of the Company. If any unexercised options
granted under the 1996 Option1998 Plan lapse or terminate for any reason, the shares
covered thereby may again be optioned thereunder. Of the total shares reserved
for issuance under the 1996 Option1998 Plan, 2,500,0001,000,000 shares are initially
12
15 available for
grant thereunder, and 2,500,0001,500,000 shares will become available for a grant if the
market price per share of the Company's Common Stock reaches the following
levels on or prior to August 22, 2000:January 23, 2004:
ADDITIONAL SHARES
BECOMING
MARKET PRICE BECOMING AVAILABLE FOR
PER SHARE FOR GRANT
- -------------------------------------------------------- ---------
$18.60 625,000
$22.32 625,000
$26.78 625,000
$32.14 625,000
-----------------$41.55 500,000
$49.86 500,000
$59.83 500,000
----------------
Total 2,500,0001,500,000
As of August 22, 1996,May 20, 1998, options to purchase a total of 2,225,0001,000,000 shares had
been granted, subject to stockholder approval, under the 1996 Option1998 Plan at an
exercise price of $15.50$34.625 per share, which was the fair market value at the time
of grant. The Company will recognize compensation expense for financial
reporting purposes in the second quarter of the current fiscal year in the
amount, if any, by which the fair market value per share of the Company's Common
Stock on the date of stockholder approval of the 1998 Plan exceeds the exercise
price per share of the options granted on January 23, 1998. The maximum number
of shares of Common Stock with respect to which an option or options may be
granted to any employee in any one taxable year of the Company shall not exceed
500,000150,000 shares of Common Stock, taking into account shares which were the
subject of options granted during such taxable year and subsequently terminated.terminated
or repriced. On September 18, 1996May 6, 1998, the closing trading price of the Company's common stockCommon
Stock on the NASDAQ Stock Market was $16.8125$34.25 per share.
TERMS AND PROVISIONS OF OPTIONS
Of the 2,500,0001,000,000 shares initially available for the grant of options under
the 1996 Option1998 Plan, 1,250,000500,000 shares are available for grantwere granted at a price
determined by the Board or the Committee,$34.625 per share, which price shall not be less thanwas 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 (4) years commencing on the
date of grant.
The remaining 1,250,000500,000 shares initially available for grant under the 1996
Option1998
Plan will bewere granted at exercise prices determined by the Board or the
Committee,$34.625 per share, which shall not be less thanwas 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 4a six (6) year period.period following the date
of grant. Under the 1996 Option1998 Plan, such appreciation must equal or exceed 20% in
each yearof the four (4) years commencing with the date of grant of each option.
Notwithstanding any such appreciation, except as set forth below, no more than
25% of the shares available for issuance under an option 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 fourthe six year period commencing on
the date of grant, assuming that the
14
17
market price per share of the Company's Common Stock achieves in such subsequent
yearyears the level which was not met in a previous year.years.
Options with respect to the additional 2,500,0001,500,000 shares which may become
available for grant under the 1996 Option Plan if the stock appreciation levels specified above under
"Shares Subject to the 1996 Option1998 Plan" are met, will be granted at an exercise price
equal to the price per share which was required in order to make such shares
available for grant under the 1996 Option1998 Plan. Options for the purchase of 50% of the
shares which become so available for grant will vest on a daily basis over the
four year period commencing on the date of grant, with the remaining 50% to vest
in 25% increments over the four year period commencing on the date of grant if
the market price per share ofif 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 subsequentwithin the six year within such four year period.period from
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 foursix year period commencing on the date of
grant, such option shall be exercisable for a thirty day period commencing with
the close of such foursix year period and thereafter shall terminate to the extent
not exercised.
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16
The duration of any option granted under the 1996 Option1998 Plan shall be set forth
in the Stock Option Agreement (the "Agreement"); provided, however, that no
option granted under the 1996 Option1998 Plan shall have a term in excess of ten (10) years
from the date of grant. Further, no incentive stock option shall be granted to
any employee who 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. Options are also subject to earlier termination as provided below.
Options shall be exercised in full or in part (however no partial exercise
may be made for less than 10ten (10) full shares) by giving written notice to the
Company, signed by the option holder or person exercising the option, stating
the number of shares as toin which the option is being exercised, accompanied by
payment of the exercise price in the form of cash or a check payable to the
order of the Company in an amount equal to the exercise price of such options or
(if permitted under the Agreement and the 1996 Option1998 Plan) shares of Common Stock of
the Company which have a fair market value equal in amount to the exercise price
of such options. The Company may not make loans to optionees to permit them to
exercise options.
An option granted to any employee who ceases to be an employee of the
Company or one of its subsidiaries shall terminate (i) on (i) the later of the last
day of the third month after the date such optionee ceases to be such employee,
or the third business day after the 1996 Option1998 Plan is approved by the stockholdersstockholders;
or (ii) on the date on which the option expires by its terms, whichever occurs
first. 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 such
employee. If such termination of employment is because the optionee has become
permanently disabled, such option shall terminate on the last day of the twelfth
month from the date such optionee ceases to be an employee of the Company or one
of its subsidiaries, or on the date on which the option expires by its terms,
whichever occurs first.
An option granted to an optionee who ceases to be 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 such employee.
An option granted to a director shall terminate on the last day of the
third month after such director ceases to serve and shall be exercisable only to
the extent that the right to purchase shares under such option shall have
accrued and is in effect on the date such director ceases to serve,serve; 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.
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18
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.
Except as provided in the Agreement, the right of an optionee to exercise
any options shall not be assignable or transferable by such optionee other 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 1996 Option1998 Plan shall be null and void and without effect upon the
bankruptcy of the optionee, or upon any purported assignment, whether voluntary
or by operation of law, pledge, hypothecation or other disposition, attachment,
trustee process or a similar process, whether legal or equitable, upon such
option.
RECAPITALIZATION; REORGANIZATION; AND CHANGE IN CONTROL EFFECTS OF 1996
LONG-TERM INCENTIVE PROGRAMTHE 1998 PLAN
The 1996 Option Plan and 1996 Stock Purchase1998 Plan provides that the number and kind of shares as to which
options may be granted thereunder and as to which outstanding options then
unexercised shall be exercisable shall be adjusted to prevent dilution in the
event of any reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, a combination of shares or dividends payable
in capital stock. In addition, unless otherwise determined by the Board or the
Committee in its sole discretion, in the case of 14
17
any sale or conveyance to
another entity of all or substantially all of the property and assets of the
Company or a change of control as defined in the 1996
Option Plan and 1996 Stock Purchase1998 Plan, the purchaser of the
Company's assets or stock may 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 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 has been made prior to such sale, conveyance or
change in control, less the option price therefore.
The Board or the Committee shall also have the right to accelerate the
exercisability of any options, notwithstanding any limitations in the 1996
Option1998 Plan
and 1996 Stock Purchase Plan or in the Option Agreement upon such sale, conveyance or change in control. Change
in control is defined in the 1996
Option Plan and 1996 Stock Purchase1998 Plan as having 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 stockCommon Stock in
one or more transactions, or series of transactions, such that following such
transaction or transactions, such person or group and affiliates beneficially
own 20% or more of the Company's common stockCommon Stock outstanding.
Upon dissolution or liquidation of the Company, all options granted under
the 1996 Option Plan and 1996 Stock Purchase1998 Plan shall terminate, thatand each optionee (if at such time in the employ
of or a director of the Company or any of its subsidiaries) shall have the
right, immediately prior to such dissolution or liquidation, to exercise such
option to the extent then exercisable.
TAX EFFECTS OF PARTICIPATION IN 1996 LONG TERM INCENTIVE PROGRAMTHE 1998 PLAN
Options granted under the 1996 Option1998 Plan are intended to be either incentive
stock options, as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or non-qualified stock options.
Incentive Stock Options. Except as provided below with respect to the
alternative minimum tax, the optionee will not recognize taxable income upon the
grant or exercise of an incentive stock option. IfIn addition, if the optionee
holds the shares received pursuant to the exercise of the option for at leastmore than
one year after the date of exercisetransfer of the shares and for at leastmore than two years after
the option is granted, the optionee will recognize long-term capital gain or
loss upon the disposition of the stock measured by the difference between the
option exercise price and the amount received for such shares upon disposition.
A maximum rate of 20% applies to long-term capital gain if the shares are held
more than eighteen months after the date of transfer.
In the event that the optionee disposes of the stock prior to the
expiration of the required holding periods (a "disqualifying disposition"), the
optionee generally will realize ordinary income equal to the difference between
the exercise price and the lower of the fair market value of the stock at the
date of the option exercise
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19
or the sale price of the stock. The basis in the stock acquired upon exercise of the
option will equal the amount of income recognized by the optionee plus the
option exercise price. Upon eventual disposition of the stock, the optionee will
recognize long-term or short-term capital gain or loss, depending on the holding
period of the stock and the difference between the amount realized by the
optionee upon disposition of the stock and the optionee's basis in the stock.
For alternative minimum tax purposes, the excess of the fair market value
of stock on the date of the exercise of the incentive stock option over the
exercise price of the option is included in alternative minimum taxable income
for alternative minimum tax purposes. If the alternative minimum tax does apply
to the optionee, an alternative minimum tax credit may reduce the regular tax in
future years, including upon eventual disposition of the stock.
The Company will not be allowed an income tax deduction upon the grant or
exercise of an incentive stock option. Upon a disqualifying disposition of
shares by the optionee acquired upon exercise of the incentive stock option, the
Company will be allowed a deduction in an amount equal to the ordinary income
recognized by the optionee.
15
18
Under proposed regulations issued by the Internal Revenue Service, the
exercise of an option with previously acquired stock of the Company will be
treated as, in effect, two separate transactions. Pursuant to Section 1036 of
the Code, the first transaction will be a tax-free exchange of the previously
acquired shares for the same number of new shares. The new shares will retain
the basis and, except, as provided below, the holding periods of the previously
acquired shares. The second transaction will be the issuance of additional new
shares having a value equal to the difference between the aggregate fair market
value of all of the new shares being acquired and the aggregate option exercise
price for those shares. Because the exercise of an incentive stock option does
not result in the recognition by the optionee of income, this issuance will also
be tax-free (unless the alternative minimum tax applies, as described above).
The optionee's basis in these additional shares will be zero and the optionee's
holding period for these shares will commence on the date on which the shares
are transferred. For purposes of the one and two-year holding period
requirements which must be met for favorable incentive stock option tax
treatment to apply, the holding periods of previously acquired shares are
disregarded.
Non-Qualified Stock Options. As in the case of incentive stock options, no
income is recognized by the optionee on the grant of a non-qualified stock
option. On the exercise by an optionee of a non-qualified option, generally the
excess of the fair market value of the stock when the option is exercised over
its cost to the optionee will be (a) taxable to the optionee as ordinary income
and (b) generally deductible for income tax purposes by the Company.
The optionee's tax basis in his stock will equal his cost for the stock plus the
amount of ordinary income the optionee had to recognize with respect to the
non-qualified stock option.
The Internal Revenue Service will treat the exercise of a non-qualified
stock option with already owned stock of the Company as two transactions. First,
there will be a tax-free exchange of the old shares for a like number of shares
under Section 1036 of the Code, with such exchanged shares retaining the basis
and holding periods of the old shares. Second, there will be an issuance of
additional new shares having a value equal to the difference between the fair
market value of all new shares being acquired (including the exchanged shares
and the additional new shares) and the aggregate option price for those shares.
The employee will recognize ordinary income under Section 83 of the Code, in an
amount equal to the fair market value of the additional new shares (i.e., the
spread on the option). The additional new shares will have a basis equal to the
fair market value of the additional new shares.
Accordingly, upon a subsequent disposition of stock acquired upon the
exercise of a non-qualified stock option, the optionee will recognize short-term
or long-term capital gain or loss depending upon the holding period of the stock
equal to the difference between the amount realized upon disposition of the
stock by the optionee and the optionee's basis in the stock.
For all options, different tax rules may apply if the optionee is subject
to Section 16 of the Securities Exchange Act of 1934.
Options granted to participants under the 1996 Stock Purchase Plan will be
treated under the Code as non-qualified stock options. This forgiveness of loans
made to participants under the 1996 Stock Purchase Plan will be recognized as
ordinary income to the participant at the time and in the amount of such
forgiveness and the Company will receive a corresponding tax deduction.
1617
1920
NEW 1998 PLAN BENEFITS
It is not possible to state the persons who will receive options under the
Company's 19961998 Stock Option Plan or the 1996 Stock Purchase Plan in the future, nor the amount of options which
will be granted thereunder. The following table provides information with
respect to options granted on August 22, 1996since the beginning of the Company's last fiscal year
through May 20, 1998 under the 1996 Option Plan,1998 Plan. All such grants are subject to
stockholder approval byof the stockholders.1998 Plan.
19961998 STOCK OPTION PLAN
1996 STOCK PURCHASE PLAN
--------------------------- -------------------------------------------------
DOLLAR NUMBER DOLLAR NUMBEROF
NAME AND POSITION VALUE(1) OF UNITS(2)UNITS (2)(3)
VALUE(1) OF UNITS
- ------------------------------------------------------------- -------- -------------- -------- --------------------------
William E. Watts, President and CEO -- 500,000 -- -0-150,000
Jerry D. Horn, Chairman -- 100,000 -- -0-50,000
Louis Mancini, Senior Vice President of GNC -- 200,000 -- -0-75,000
Edwin J. Kozlowski, ExecutiveSenior Vice President and Chief
Financial Officer -- 150,00075,000
Gregory T. Horn, Chief Marketing Officer -- -0-
John A. DiCecco, Senior Vice President of
GNI -- 50,000 -- -0-75,000
Executive Officers as a Group -- 1,220,000 -- -0-565,000
Directors as a Group (excluding Executive Officers) -- 40,000
-- -0-
Employees as a Group (excluding Executive Officers) -- 1,005,000 -- -0-395,000
- ---------
(1) The dollar value of the options is equal to the difference between the
exercise price of the options granted and the fair market value of the
Company's Common Stock at the date of exercise.
(2) The exercise price per share is $15.50$34.625 per share, the mean between the high
and low sales pricesclosing market price
of the Company's Common Stock on the day prior to the date of grant.
(3) Fifty percent of the shares subject to the optionsThe option granted to the directors
executive officers and employees vestMr. Watts vests as to 75,000 shares in equal daily
increments over four years and the vesting of the optionsvests as to purchase the remaining fifty
percent of such shares is dependentdepending
upon the achievement of the foregoing
performance objectives relating to appreciation of
the market price of the Company's Common Stock over foursix years. The same
vesting hurdles apply to the options granted to the directors, other
executive officers and employees. The options have a ten year term; but the
options which vest on the basis of performance objectives become fully
vested for a 30 daysday period following the expirationclose of four years fromthe sixth fiscal year
after the date of grant, and thereafter expire if the performance objectives have not been met.
DEADLINEPROPOSAL NO. 3
RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT AUDITORS
The firm of Deloitte & Touche LLP and predecessor firms have served
continuously since 1964 as independent auditors of the Company and has been
appointed by the Board of Directors as the Company's independent auditors to
audit the financial statements of the Company for the fiscal year ending
February 6, 1999. Although the appointment of independent auditors is not
required to be approved by the stockholders, the Board of Directors believes
stockholders should participate in making the appointment by voting on the
subject. If the stockholders do not ratify the appointment of Deloitte & Touche
LLP, the selection of auditors will be reconsidered by the Board of Directors.
Representatives of that firm will be present at the Annual Meeting, where they
will be available to respond to appropriate questions and will also have the
opportunity to make a statement if they so desire.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR SUBMISSION OFTHE PROPOSAL.
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STOCKHOLDER PROPOSALS AND OTHER MATTERS
The Company's next Annual Meeting will be held on June 26, 1997.24, 1999. An
eligible stockholder who desires to have a qualified proposal considered for
inclusion in the proxy statement for that meeting must notify the Secretary of
the terms and content of the proposal no later than January 17, 1997.20, 1999.
The Company's By-Laws outline procedures, including minimum notice
provisions, for stockholder nomination of directors and other stockholder
business to be brought before stockholders at the Annual Meeting. A copy of the
pertinent By-Law ProvisionsBy-Laws provisions is available on request to James M. Sander,
Secretary, General Nutrition Companies, Inc., 921 Penn300 Sixth Avenue, Pittsburgh,
Pennsylvania 15222.
OTHER MATTERS
Management knows of no matters which may properly be and are likely to be
brought before the meeting other than the matter discussed herein. However, if
any other matters properly come before the meeting, the persons named in theSOLICITATION AND EXPENSES OF SOLICITATION
The enclosed proxy will vote in accordance with their best judgment.
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VOTING PROXIES
The Board of Directors recommends an affirmative vote on the proposal
specified. Proxies will be voted as specified. If signed proxies are returned
without specifying an affirmative or negative vote on any proposal, the shares
represented by such proxies will be voted in favor of the Board of Directors'
recommendations.
By Order of the Board of Directors,
/s/ JAMES M. SANDER
James M. Sander
Vice President - Law,
Chief Legal Officer and Secretary
Pittsburgh, Pennsylvania
October 2, 1996
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Appendix 1
1996 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 Five
Million (5,000,000) 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, 2,500,000 shares are initially available for grant hereunder
and 2,500,000 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
August 22, 2000:
Market Price Additional Share Becoming
Per Share Available for Grant
------------ -------------------------
$18.60 625,000
$22.32 625,000
$26.78 625,000
$32.14 625,000
---------
TOTAL: 2,500,000
22
(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 substantiation 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
2
23
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.
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24
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
500,000 shares of Common Stock, taking into account shares which were the
subject of options granted during such taxable year and subsequently
terminated.
6. Option Grants; Option Agreement.
Of the 2,500,000 shares initially available for the grant of options
hereunder, 1,250,000 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.
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25
The remaining 1,250,000 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 such four year period commencing on the date of grant,
assuming that the market price per share of the Company's Common Stock achieves
in such subsequent year the level which was not met in a previous year.
Options with respect to the additional 2,500,000 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,
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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 such four year period.
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 four year period commencing on the date
of grant, such option shall be exercisable for a 30-day period commencing with
the close of such four 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
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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.
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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.
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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 on (i) the later of the last
day of the third month after the date such optionee ceases to be a director or
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.
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30
(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
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31
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
11
32
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.
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33
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.
(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.
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34
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
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(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
15
36
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
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37
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 adoptedsolicited by the Board of Directors of the Company.
The cost of this solicitation will be borne by the Company. In addition to
solicitation by mail, proxies may be solicited personally or by telephone or
telegram by officers or employees of the Company. The Company does not expect to
pay any compensation for the solicitation of proxies, but under arrangements
made with brokers, custodians, nominees and fiduciaries to send proxy material
to the beneficial owners of shares held by them, the Company may reimburse them
for their expenses in so doing.
ANNUAL REPORT AND FORM 10-K
The Annual Report on Form 10-K of the Company for the fiscal year ended
January 31, 1998, was mailed to the stockholders together with this Proxy
Statement.
Upon written request by any shareholder entitled to vote at the 1998 Annual
Meeting, the Company will furnish that person without charge a copy of the
Annual Report on Form 10-K for the fiscal year ended January 31, 1998, which it
filed with the Securities and Exchange Commission, including financial
statements and schedules. If the person requesting the report was not a
shareholder of record on May 6, 1998, the request must contain a good faith
representation that the person making the request was a beneficial owner of
Company Common Stock at the close of business on that date. Requests should be
addressed to James M. Sander, Secretary, General Nutrition Companies, Inc., 300
Sixth Avenue, Pittsburgh, Pennsylvania 15222.
The foregoing notice and proxy statement are sent by order of 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 SectionDirectors.
/s/ JAMES M. SANDER
JAMES M. SANDER
Vice President -- Law,
Chief Legal Officer and Secretary
May 20, 1998
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22
1. ELECTION OF TWO CLASS I DIRECTORS to the Board of Directors, may not, withouteach for a
three-year term expiring in 2001.
FOR all nominees listed below (except as marked to the approvalcontrary) [ ]
WITHHOLD AUTHORITY to vote
for all nominees listed below. *EXCEPTIONS
[ ] [ ]
Nominees: David Lucas and W. Harrison Wellford
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
*Exceptions
---------------------------------------------------------------------
2. To consider and vote upon a proposal to approve the Company's 1998
Management and Director Stock Option Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To ratify the appointment of the stockholdersDeloitte & Touche LLP as independent auditors
of the Company obtainedfor the fiscal year ending February 6, 1999.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
Change of Address and
or Comments Mark Here
When signing as attorney, executor, administrator, trustee, guardian, custodian,
or the like, give title as such. If the signer is a corporation sign 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 Plancorporate name 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.
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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.
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Appendix 2duly authorized officer.
Dated:
----------------------------------
- ----------------------------------------
Signature
- ----------------------------------------
Signature
VOTED MUST BE INDICATED (X) IN BLACK OR BLUE INK. X
PLEASE RETURN PROMPTLY IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE U.S.A.
REVOCABLE PROXY
GENERAL NUTRITION COMPANIES, INC.
1996 MANAGEMENT AND DIRECTOR STOCK PURCHASE PLAN
1. PurposeTHIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The purposesundersigned holder of General Nutrition Companies, Inc. Common Stock
hereby constitutes and appoints Robert V. Dunn, Edwin J. Kozlowski and Louis
Mancini, or any of them with full power of substitution, as attorneys and
proxies for the undersigned to appear and vote all of the plan are to encourage senior managementshares of Common
Stock of General Nutrition Companies, Inc. (the "Company") and its affiliates and directorsstanding on the
books of the Company in the name of the undersigned at the 1998 Annual Meeting
of Stockholders of the Company to own shares of the Company's stock and thereby to align their
interests more closely with the interests of the other shareholders of the
Company, to encourage the highest level of senior management and director
performance, and to provide a financial incentive that will help attract and
retain the most qualified senior management and directors.
2. Definitions
The following words or terms, when used herein, shall have the
following respective meanings:
(a) "Account" means the Management and Director Stock Purchase
Account established for a Participant under Section 7
hereunder.
(b) "Base Market Price" shall mean the average stock price used
for establishing the quarterly Purchase Price and determined
by calculating the average of the high and low sales prices
of the common stock for the first five trading days of each
of the three months of the previous calendar quarter. If the
shares of Common Stock are listed on any national securities
exchange, or traded on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") National Market
System, the Base Market Price shall be calculated using the
largest such exchange, or if not traded on an exchange, the
NASDAQ National Market System. If the
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40
shares of Common Stock are not then listed on any such
exchange or the NASDAQ National Market System, the Base
Market Price per share of Common Stock shall be calculated
using the mean between the closing "Bid" and the closing
"Asked" prices, if any, as reportedheld in the National Daily
Quotation Service for such day. IfUrban Room at the Base Market Price
cannot be determined under the preceding sentences, it shall
be determined in good faith by the BoardWestin
William Penn Hotel, 530 William Penn Place, Pittsburgh, Pennsylvania on June
25, 1998 at 10:00 a.m. Eastern Daylight Time, and at any adjournments of Directors.
(c) "Basic Compensation" shall mean the regular rate of salary or
wages in effect immediately prior to a Purchase Period, but
shall exclude bonuses, severance or payments of a similar
kind, contributions by the applicable employer to benefit
plans and benefits paid under such plans, and amounts paid in
reimbursement for employee business expenses. For
non-employee directors Base Compensation shall mean their
annual director fees and meeting attendance fees.
(d) "Board of Directors" shall mean the Board of Directors of
General Nutrition Companies, Inc.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Committee" shall mean the Compensation Committee of the
Board of Directors.
(g) "Company" shall mean General Nutrition Companies, Inc., a
Delaware Corporation.
(h) "Common Stock" shall mean shares of the Company's common
stock with a par value of $.01 per share.
(i) "Effective Date" shall mean August 22, 1996 (the date upon
which the Plan was adopted by the Board of Directors of the
Company).
2
41
(j) "Exercise Date" shall mean the last day of a Purchase Period;
provided, however, that if such date is not a business day,
"Exercise Date" shall mean the immediately preceding business
day.
(k) "Participant shall mean a director of the Company or an
Employee who selected by the Committee to receive benefits
under the Plan and who has elected to participate in the Plan
under Section 6 hereunder.
(l) "Plan" shall mean the 1996 Management and Director Stock
Purchase Plan.
(m) "Purchase Loan" means an extension of credit to the
Participant by the Company evidenced by the Purchase Note and
secured by a pledge of the shares of Common Stock purchased
by the Participant.
(n) "Purchase Note" means a promissory note including the terms
set forth in Section 8.
(o) "Purchase Price" shall mean 80% of the Base Market Price for
the relevant Purchase Period multiplied by the number of
shares purchased.
(p) Except as provided below, there shall be four quarterly
"Purchase Periods" in each full fiscal year during which the
Plan is in effect. Such Purchase Period shall commence on the
1st business day of each fiscal quarter and end on the 5th
business day of each fiscal quarter. For example, the first
Purchase Period after adoption of the Plan shall commence on
October 14, 1996, and end on October 18, 1996.
3. Grant of Option to Purchase Shares.
Each Participant shall be granted an option effective on the first day
of each Purchase Period to Purchase shares of Common Stock. The term of the
option shall be the length of the Purchase Period.
3
42
4. Shares.
There shall be 1,000,000 shares of Common Stock reserved for issuance
to and purchase by Participants under the Plan, subject to adjustment as herein
provided. The shares of Common Stock subject to the Plan shall be either shares
of authorized but unissued Common Stock or shares of Common Stock acquired by
the Company and held as treasury shares. Shares of Common Stock not purchased
under an option terminated pursuant to the provisions of the Plan may again be
subject to options granted under the Plan.
5. Administration.
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 substantiation 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
4
43
advisable.said
Annual Meeting. A majority of the members of the Committeesaid attorneys and proxies as shall constitute a quorum
and any action may be taken by a majority of those present
and voting (or if only one shall be present and voting, then that one) in
person or by substitutes or substitutes at said meeting or any meeting. Any actionadjournment
thereof, shall have and may also be taken without the necessity of a meeting by a
written instrument signed by a majorityexercise all of the Committee.
6. Election to Participate.
(a) Election Process. A Participant may elect to become a Participant
in the Plan for a Purchase Period by completingpowers of such said attorneys
and filing with James M.
Sander, the Corporate Secretary, a "Stock Purchase Plan Enrollment" form prior
to the first dayproxies hereunder. The undersigned hereby acknowledges receipt of the
Purchase Period for whichNotice of Annual Meeting and the election is made. Such
Stock Purchase Plan Enrollment form shall be in such formProxy Statement dated May 20, 1998 and
instructs its attorneys and proxies to vote as shall be
determined by the Board of Directors or the Committee. The election to
participate shall be effective for the Purchase Period for which it is made.
There is no limitset forth on the number of Purchase Periods for which a ParticipantProxy, the
undersigned stockholder may elect in the Plan, however, the aggregate purchases under the Plan by a
Participant may not exceed two times his/her then current Base Compensation;
provided however that non-officer (below Vice Presidents) and non-directors may
participate only to fifty percent (50%) of their Base Compensation. Options
granted to Participants who have failed to execute a Stock Purchase Plan
Enrollment form or pay the Purchase Price within the time periods prescribed by
the Plan will automatically lapse.
(b) Minimum Stockholding Requirement. The Compensation Committee of
the Board of Directors established a minimum stockholding requirement for
members of senior management with the initial guideline set by the Committee of
one times annual salary, which initial guideline would be in effect for at
least two years and thereafter reviewed by the Committee every two years
thereafter. To participate inrevoke this Plan a Participant agrees that to the extent
that the Participant has not met the minimum stockholding requirements set
forth by the Committee, then incentive
5
44
compensation otherwise paid to the employee in cash will be paid instead 50% in
cash and 50% in Common Stock until the minimum stockholding requirement is met.
The portion of the individual incentive compensation that is paid in stock will
be reduced to meet the tax withholding obligations pursuant to the applicable
standard tax withholding rate, and the net amount will be converted into an
election to purchase shares of Common Stock under the Plan. A Stock Purchase
Plan Enrollment form will be submitted for the next Purchase Date and the
purchase on the next Exercise Date. This automatic election shall be repeated
for subsequent payments of incentive compensation until the minimum
stockholding requirement is met.
7. Employee Stock Purchase Account and Payment for Shares.
(a) An Employee Stock Purchase Account will be established for each
Participant in the Plan for bookkeeping purposes. Prior to the applicable
Exercise Date a Participant who has filed a completed Stock Purchase Plan
Enrollment form must pay to the Company in cash or immediately available funds
the full amount of the Purchase Price multiplied by the applicable number of
shares, together with the applicable withholding taxes amount. Payment of up to
one half of the Purchase Price and withholding tax may be made by delivery of
an approved Purchase Note; provided however, the aggregate amount loaned to the
Participant under this Plan may not exceedproxy at any time one times the
Participant's Base Compensation. However, prior to the purchase of shares in
accordance with Section 9 or withdrawal from or termination of the Plan in
accordance with the provisions hereof, the Company may use for any valid
corporate purpose all amounts deposited under the Plan and credited for
bookkeeping purposes to his Account.
(b) The Company shall be under no obligation to pay interest on funds
credited to a Participant's Account, whether upon purchase of shares in
accordance with Section 9 or upon distribution in the event of withdrawal from
or termination of the Plan as herein provided.
6
45
8. Purchase Loan.
(a) The Company shall extend a Purchase Loan to a Participant upon the
Exercise Date to match actual cash paid into the Participant's Account for the
applicable Purchase Period and subject to the terms and conditions set forth in
this Section 8. The original principal amount of the Purchase Loan shall be up
to fifty percent (50%) of the Purchase Price of shares purchased on the
Exercise Date plus the standard withholding tax amount, if the Participant
requests such additional loan amount. However, the aggregate amount of the
Purchase Loan outstandingbefore it is limited to and may not in any event exceed one
times the Participant's then current Base Compensation. Such Purchase Loan
shall be evidenced by the Purchase Note. The obligations of each Participant
under a Purchase Note shall be unconditional and absolute and, without limiting
the generality of the foregoing, shall not be released, discharged or otherwise
affected by any change in the existence, structure or ownership of the Company,
or any insolvency, bankruptcy, reorganization or other similar proceeding
affecting the Company or its assets or the market value of the Common Stock or
any resulting release or discharge of any obligation of the Company or the
existence of any claim, set-off or other rights which any participant may have
at any time against the Company or any other person, whether in connection with
the Plan or with any unrelated transactions, provided that nothing herein shall
prevent the assertion of any such claim by separate suit or counterclaim.
Notwithstanding anything to the contrary in this Section 8, the Company shall
not be required to make any Purchase Loan to a Participant if the making of
such Purchase Loan will (i) cause the Company to violate any covenant or
similar provision in any indenture, loan agreement or other agreement, or (ii)
violate any applicable federal, state or local law, provided, that the failure
to make such Purchase Loan shall be deemed to revoke the exercise of the
related Purchase Award unless otherwise specified by the Participant.
7
46
(b) Security. Payment of the Purchase Note shall be secured by a
pledge of all of the shares of Common Stock acquired by the Participant upon
the Exercise Date to which the Purchase Loan relates. The Participant shall
effect such pledgevoted by
delivering to the Secretary of the Company (i)either a written revocation of the
certificateproxy or
certificates for the shares of Common Stock acquired, accompanied by a duly executed stock power in blank, (ii)proxy bearing a properly executed stock pledge agreement,
and (iii) such other documents as may be requiredlater date, or by the Committee. A
Participant shall always have the right to sell shares of Common Stock acquired
pursuant to the Plan provided that (i) such sales must be made in open-market
transactions or at a price not less than the Market Price on the Trading Day
prior to the date of sale, (ii) the Company shall have a security interest in
the proceeds of such sale to the extent of any outstanding Purchase Loan, and
(iii) the proceeds of any such sale are utilized in the manner to satisfy any
of the applicable prepayment Sections. Prior to payment in full of the
outstanding balance on the Purchase Note (including accrued and unpaid
interest), no shares of Common Stock pledged to the Company under the stock
pledge agreement shall be released except as made available under Section 10 or
as are made available upon satisfaction of a prepayment requirement.
(c) Term. The term of the Purchase Loan for any Participant shall
begin on such Participant's Purchase Date and, subject to prepayment as
provided in subsections (e) and (g), have a final maturity date four (4) years
from the date of the Purchase Loan.
(d) Interest on the principal balance of the Purchase Loan will accrue
annually, in arrears, at six percent (6%). Accrued interest shall be payable on
a quarterly basis.
(e) Forgiveness of Company Loan. The Company would forgive the
principal of the loanappearing at the
rate of 25% per year, pursuant to the schedule set
forth below, if the Company's stock price appreciatesAnnual Meeting and voting in person.
The shares represented by 25% or more in the
years following the purchase. Achievement of the hurdlethis
Proxy will be 8voted as specified. IF NO
CHOICE IS SPECIFIED, THE PROXY WILL BE
VOTED IN FAVOR OF THE SPECIFIED NOMINEES
IN PROPOSAL 1. FOR PROPOSALS 2 AND 3,
AND IN THE DISCRETION OF THE PROXIES AS GENERAL NUTRITION COMPANIES, INC.
TO OTHER MATTERS. HOWEVER, THIS PROXY P.O. BOX 11449
CARD MUST BE PROPERLY COMPLETED, SIGNED, NEW YORK, N.Y. 10203-0449
DATED AND RETURNED TO THE COMPANY IN
ORDER TO HAVE YOUR SHARES VOTED. IF YOU
DO NOT RETURN THIS CARD, YOUR SHARES
WILL NOT BE REPRESENTED UNLESS YOU
ATTEND THE MEETING AND VOTE IN PERSON.
47
calculated based upon the stock's 15 day trailing trading average stock price
during such year. (If the stock price did not appreciate by the 25% minimum in
any one year, the Participant would get the benefit of a catch up if the stock
price appreciated in the following year to the level required in such following
year or on a cumulative basis over the course of the four-year period, however,
reaching the hurdle, prior to the scheduled year does not accelerate the loan
being forgiven.) For purposes of calculating the yearly period, the twelve month
period following the Exercise Date for the applicable Purchase Period shall be
used. The amount forgiven shall include accrued interest for the applicable
quarter. The schedule for Loan Forgiveness is set forth below:
SCHEDULE FOR LOAN FORGIVENESS
TARGET
YEAR STOCK PRICE LOAN BALANCE FORGIVEN
---- ----------- ---------------------
1 $19.50 25%
2 $24.375 25%
3 $30.468 25%
4 $38.085 25%
(f) Change of Control. Upon a Change of Control prior to any
outstanding balance (including accrued and unpaid interest) of the
Participant's Purchase Loan (subject to any prepayments pursuant to Section 8)
shall be forgiven.
(g) Optional Prepayments. The Participant may prepay all or any
portion of the Purchase Loan at any time.
(h) Application of Prepayments. All prepayments made to the Company
pursuant to this Section 8 shall first be applied to pay accrued interest on
the Purchase Loan and then to reduce the principal balance due on the Purchase
Loan. Any prepayment of the remaining balance of the Purchase Loan shall be
applied to the principal payments due thereon in chronological order of
maturity.
9
48
(i) Prepayment Obligations upon Termination of Service. Upon a
termination of service by a Participant ("Termination of Service") from the
Company or any of its affiliates, any outstanding balance on the Purchase Loan
(including any accrued and unpaid interest) shall become due and payable on the
later of (i) the 120th day following such Termination of Service or (ii) the
90th day following the first date on which the participant may sell the Common
Stock purchased under the Plan without incurring liability under the federal
securities laws, including Section 16 of the 1934 Act, (limited, in the case of
Section 16, to liability relating to purchases or sales of Common Stock or any
derivative security occurring prior to the Termination of Service).
(j) Prepayment Obligations Other than Termination of Service. In the
event a Participant sells shares of Common Stock acquired under the Plan prior
to the earliest of (i) Termination of Service, (ii) a Change of Control or
(iii) Loan Forgiveness, the Participant shall immediately prepay the Purchase
Loan by the full pre-tax amount of the proceeds of such sale of such shares to
the extent the current market value of the balance of shares held in the
Participants Account is less than one times the Participant's then current
Basic Compensation plus the aggregate Purchase Loan Amount. A transfer of a
Participant's shares of Common Stock to a revocable trust as to which the
Participant retains voting and investment power (which powers of revocation,
voting and investment may be shared with the Participant's spouse) or a
transfer to joint ownership with such Participant's spouse shall not be deemed
a sale for purposes of this Section 8, although such shares shall remain
pledged to secure the Purchase Loan and, solely for the purposes of this Plan,
shall be deemed to be owned by the Participant.
10
49
9. Purchase of Shares.
Each Participant in the Plan automatically and without any act on his
part will be deemed to have exercised his option on each Exercise Date to the
extent that the balance then in his Account under the Plan is sufficient to
purchase at the Purchase Price whole shares of the Common Stock subject to his
option. Any balance remaining in the Participant's Account shall be carried
forward and credited for use in the next Purchase Period. If the Employee
chooses not to participate in the next Purchase Period, any balance will be
refunded to him in cash. The Company shall have the right to withhold from the
Participant's regular wages any and all withholding taxes required to be
withheld with respect to any income recognized by the Participant upon the
purchase of shares hereunder, or at the Company's option, require that the
Participant make payment to the Company of an amount necessary to meet such
withholding tax obligations.
10. Sales of Stock.
Sales of stock purchased under the Plan are not permitted until at
least six (6) months after the Exercise Date for the applicable shares.
Thereafter, any such sales are permitted only when the current market value for
the Company's Common Stock held in the Participant's account exceeds the
minimum holding requirement in Section 6 plus any amount outstanding under a
Purchase Loan. The limitation in the previous sentence shall not apply in the
event the Employee has a Termination of Service with his/her applicable company
or in the event a Hardship Withdrawal is granted by the Committee. The Employee
cannot sell any amount of stock which would bring their cumulative holdings to
less than one year's salary plus the amount of purchase loan outstanding,
unless the employee left the Company or the Committee of the Board of
Director's approved a specific "hardship" withdrawal.
11
50
11. Withdrawal.
A Participant who has elected to purchase shares of Common Stock may
cancel his election by written notice of cancellation delivered to the
Corporate Secretary's office ("Cancellation"), but any such notice of
Cancellation must be so delivered not later than one (1) business day before
the relevant Exercise Date.
A Participant will receive in cash, as soon as practicable after
delivery of the Notice of Cancellation, the amount of cash credited to his
Account during the Purchase Period. Any Participant who so withdrawals from the
Plan may again become a Participant on subsequent Purchase Dates.
Upon dissolution or liquidation of the Company or a merger or
consolidation in which the Company is not the surviving entity every option
outstanding hereunder shall terminate, in which event each Participant shall be
refunded the amount of the cash then in his Account. 12. Hardship Withdrawal.
In the event the Participant suffers a financial hardship, the Committee may,
if it deems advisable in its sole and absolute discretion, authorize on behalf
of the Participant as a hardship withdrawal a sale of Common Stock from a
Participant's Account below the minimum stockholding requirement (the "Hardship
Withdrawal"), in any portion of the Participant's Account up to, but not in
excess of, the amount needed to cover the hardship, and shares sufficient to
cover the outstanding balance on any Purchase Loan must remain in the
Participant's Account. Financial Hardship shall mean dire financial need of the
Participant caused by temporary or permanent disability or incapacity, medical
expenses, educational expenses, for the Participant or his or her dependents,
purchase of a principal residence, prevention of eviction from the
Participant's principal residence, or a material reduction in family income for
which no other resources are reasonably available.
12
51
13. Issuance of Stock and Sales of Stock.
The shares of Common Stock purchased by a Participant shall, for all
purposes, be deemed to have been issued and sold at the close of business on
the Exercise Date. Prior to that date none of the rights or privileges of a
stockholder of the Company, including the right to vote or receive dividends,
shall exist with respect to such shares.
Within a reasonable time after the Exercise Date, the Company shall
issue and allocate to the account of the Participant the number of shares of
Common Stock purchased by a Participant for the Purchase Period in book entry
form (uncertificated shares), together with a statement setting forth the
number of shares so purchased; which account shall be registered either in the
Participant's name, jointly in the names of the Participant and his spouse, or
otherwise as the participant shall designate in his Stock Purchase Plan
Enrollment form. Such designation may be changed at any time by filing notice
thereof with the Corporate Secretary.
At any time shares held in a Participant's Account becomes available
for sale by the Participant under the terms of this Plan, a Participant may
request a withdrawal of all or a portion of the shares then available for sale
and, standing in the Participant's name under the Plan. The request must be
made by written notice to the Corporate Secretary or as may be required by the
Committee. The minimum partial withdrawal is 10 shares of Common Stock.
Provided, however, that Hardship Withdrawals approved by the Compensation
Committee may be permitted.
14. 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
13
52
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.
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
14
53
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.
(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.
15. Termination of Employment.
(a) Upon a Participant's termination of employment for any reason,
other than death, the entire balance credited to his Account shall be
automatically refunded and any shares in excess of the aggregate Purchase Loan
balance shall be released to the Participant.
(b) Upon the death of a Participant, the entire balance in the
deceased Participant's Account shall be paid in cash to the Participant's
designated beneficiary, if any, under a group insurance plan of the Company
covering such employee, or otherwise to his estate and any shares in excess of
the loan balance released, as well.
15
54
16. Rights Not Transferable.
The right to purchase shares of Common Stock under this Plan is
exercisable only by the Participant during his lifetime and is not transferable
by him. If a Participant attempts to transfer his right to purchase shares
under the Plan, he shall be deemed to have requested withdrawal from the Plan
and the provisions of Section 9 hereof shall apply with respect to such
Participant.
17. No Guarantee of Continued Employment.
Granting of an option under this Plan shall imply no right of
continued employment with the Company for any Participant.
18. Notice.
Any notice which a Participant files pursuant to this Plan shall be in
writing and shall be delivered personally or by mail addressed to General
Nutrition Companies, Inc., 921 Penn Avenue, Pittsburgh, Pennsylvania 15222,
Attention James Sander, Corporate Secretary. Any notice to a Participant shall
be conspicuously posted in the Company's principal office or shall be mailed
addressed to the Participant at the address designated in the Stock Purchase
Plan Enrollment Form or in a subsequent writing.
19. Government Approvals or Consents.
This Plan and any offering and sales to Participants under it are
subject to any governmental approvals or consents that may be or become
applicable in connection therewith. Subject to the provisions of Section 20,
the Board of Directors for the Company may make such changes in the Plan and
include such terms in any offering under this Plan as may be necessary or
desirable, in the opinion of counsel, to comply with the rules or regulations
of any governmental authority, or to be eligible for tax benefits under the
Code or the laws of any state.
16
55
20. Amendment of the Plan
The Board of Directors may, without the consent of the Participants,
amend the Plan at any time, provided that no such action shall adversely affect
options theretofore granted hereunder, and provided that no such action by the
Board of Directors without approval of the Company's stockholders may: increase
the total number of shares of Common Stock which may be purchased by all
Participants.
For purposes of this Section 19, termination of the Plan by the Board
of Directors pursuant to Section 20 shall not be deemed to be an action which
adversely affects options theretofore granted hereunder.
21. Term of the Plan
The Plan shall become effective on the Effective Date, provided that
it is approved within twelve months after adoption by the Board of Directors at
a duly-held stockholder's meeting by stockholders of the Company holding a
majority of the Company's voting stock. The Plan shall continue in effect
through August 22, 2006, provided, however, that the Board of Directors shall
have the right to terminate the Plan at any time. In the event of the
expiration of the Plan or its termination, all options then outstanding under
the Plan shall automatically be canceled and the entire amount credited to the
Account of each Participant hereunder shall be refunded to each such
Participant.
17
5623
REVOCABLE PROXY
GENERAL NUTRITION COMPANIES, INC.
This Proxy is Solicited on Behalf of the Board of Directors
ToOf General Nutrition Companies, Inc., Trustee
As a participant in the General Nutrition Companies, Inc. 1993 Employee
Stock Purchase Plan (the "Stock Purchase Plan"), I hereby instruct you to vote
the shares of Common Stock, par value $.01 per share ("Common Stock"), of
General Nutrition Companies, Inc. (the "Company") allocated to my Stock Purchase
Plan account at the Special1998 Annual Meeting of Stockholders of the Company to be
held in the Urban Room at the Company's
headquarters 921Westin William Penn Avenue,Hotel, 530 William Penn Place,
Pittsburgh, Pennsylvania on OctoberJune 25, 19961998 at 10:00 a.m. Eastern Daylight Time,
and at any adjournments of said Annual Meeting, (a) in accordance with the
following direction and (b) to grant a proxy to the proxies nominated by the
Company's Board of Directors authorizing them to vote in their discretion upon
such other matters as may properly come before the meeting. The undersigned
hereby acknowledges receipt of the Notice of SpecialAnnual Meeting and the Proxy
Statement dated October 2, 1996May 20, 1998 and instructs its attorneys and proxies to vote as
set forth on this Proxy. The undersigned plan participant may revoke this proxy
at any time before it is voted by delivering to the Secretary of the Company
either a written revocation of the proxy or a duly executed proxy bearing a
later date, or by appearing at the Annual Meeting and voting in person.
The
1. ELECTION OF TWO CLASS I DIRECTORS to the Board of Directors, recommendseach for a three-year term expiring in 2001.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote FORfor all nominees listed below
(except as marked to the following proposal:
1.contrary)
David Lucas and W. Harrison Wellford
(INSTRUCTION: To withhold authority to vote for any individual nominee write
that nominee's name in the following space provided below.)
2. To consider and actvote upon a proposal to approve the General Nutrition Companies, Inc. 1996 Long Term Incentive
Program, which includes the 1996 Management and Director Stock Purchase Plan and the 1996Company's 1998 Management and Director Stock Option Plan.
/ /[ ] FOR / /[ ] AGAINST / /[ ] ABSTAIN
(Continued and to be signed and dated on reverse side)
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting.
3. To ratify the appointment of Deloitte & Touche LLP as independent auditors of the Company for the fiscal year ending
February 6, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the
Meeting.
The shares represented by this Proxy will be voted as specified. IF NO
CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED IN FAVOR OF THE SPECIFIED NOMINEES
IN PROPOSAL NO. 1, FOR PROPOSALS NO. 2 AND 3, AND IN THE DISCRETION OF THE
PROXIES AS TO OTHER MATTERS. HOWEVER, THIS PROXY CARD MUST BE PROPERLY
COMPLETED, SIGNED, DATED AND RETURNED TO THE COMPANY IN ORDER TO HAVE YOUR
SHARES VOTED. IF YOU DO NOT RETURN THIS CARD, YOUR SHARES WILL NOT BE
REPRESENTED UNLESS YOU ATTEND THE MEETING AND VOTE IN PERSON.
When signing as attorney, executor, administrator, trustee, guardian,
custodian, or the like, give title as such, if the signer is a
corporation, sign in the corporate name by a duly authorized officer.
Dated , 1996
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Signature
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Signature
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When signing as attorney, executor, administrator, Dated ........................................................., 1998
trustee, guardian, custodian, or the like, give title
as such, if the signer is a corporation, sign in the Signature ...........................................................
corporate name by a duly authorized officer.
Signature ...........................................................
(if held jointly)
57
PROXY
GENERAL NUTRITION COMPANIES, INC.
Special Meeting of Stockholders
October 25, 1996
The undersigned hereby appoints Robert V. Dunn, Edwin J. Kozlowski and
Louis Mancini, and each of them, with full power of substitution, proxies
to represent the undersigned at a Special Meeting of Stockholders of
GENERAL NUTRITION COMPANIES, INC., to be held October 25, 1996 at 10:00
a.m. at Penn Avenue, Pittsburgh, Pennsylvania 15222, and at any adjournment
or adjournments thereof, to vote in the name and place of the undersigned,
with all powers which the undersigned would posses if personally present,
all of the shares of GENERAL NUTRITION COMPANIES, INC. standing in the name
of the undersigned upon such business as may properly come before the
meeting, including the following:
The Board of Directors recommends a vote FOR the following proposal:
1. To consider and act upon a proposal to approve the General Nutrition Companies, Inc. 1996 Long Term Incentive
Program, which includes the 1996 Management and Director Stock Purchase Plan and the 1996 Management and
Director Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion, the proxies are authorized to vote upon other
business as may properly come before the meeting.
(Continued and to be signed and dated on reverse side)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THE BOARD
RECOMMENDS AN AFFIRMATIVE VOTE ON THE PROPOSAL SPECIFIED. SHARES WILL BE
VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED
WILL BE VOTED FOR PROPOSAL 1.
Please sign exactly as your name(s) appear on the Proxy. When shares are
held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by President
or other authorized officer. If a partnership, please sign in partnership
name by authorized person.
Dated , 1996
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Signature
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Signature
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Please date and sign this proxy in the space provided and return it in
the enclosed envelope, whether or not you expect to attend the meeting
in person.