<PAGE> 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:
<TABLE>
<S> <C>
/ / 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
/ / Solicitin Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
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):
/ / $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:
/X/ 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:
<PAGE> 2
October 2, 1996
Dear General Nutrition Companies, Inc. Stockholder:
We're taking steps to further build General Nutrition's momentum and 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 adopted the General Nutrition Companies, Inc. 1996
Long Term Incentive Program which provides for a revamping of our compensation
program for senior management and provides for a stock option plan to give a
much larger group of our people a direct economic stake in our shareowners'
success. Shareholder approval of 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 officers 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 directors and senior management, officers, and other key
employees selected by the Compensation Committee the opportunity to purchase
company stock at a discount and to leverage that purchase with a matching loan
financed by 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 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,
/s/ WILLIAM E. WATTS
---------------------------
WILLIAM E. WATTS
President and
Chief Executive Officer
<PAGE> 3
LOGO
GENERAL NUTRITION COMPANIES, INC.
921 PENN AVENUE
PITTSBURGH, PENNSYLVANIA 15222
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
OCTOBER 25, 1996
TO ALL STOCKHOLDERS:
A Special Meeting of the Stockholders of GENERAL NUTRITION COMPANIES, INC.,
will be held on Friday, October 25, 1996, at 10:00 a.m. at 921 Penn Avenue,
Pittsburgh, Pennsylvania 15222 for the following purposes:
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.
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,
1996 as the record date for the meeting. All stockholders of record on that date
are entitled to notice of and to vote at the meeting.
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
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.
<PAGE> 4
GENERAL NUTRITION COMPANIES, INC.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of GENERAL NUTRITION COMPANIES, INC. (the
"Company") for use at the Special Meeting of Stockholders to be held on October
25, 1996, at the time and place set forth in the notice of the meeting, and at
any adjournments thereof. The approximate date on which this Proxy Statement and
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
in the manner directed by the stockholders. If no instructions are specified
with respect to the matter to be acted upon, proxies will be voted in favor
thereof. Any person giving the enclosed form of proxy has the power to revoke it
by voting in person at the meeting, or by giving written notice of revocation to
the Secretary of the Company at any time before the proxy is exercised.
The holders of a majority in interest of all Common Stock issued,
outstanding and entitled to vote are required to be present in person or be
represented 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 are required to approve the proposal. Abstentions
are counted as present in determining whether the quorum requirement is
satisfied and have the same effect as a vote against the proposal.
The Company will bear the cost of the solicitation. It is expected that the
solicitation will be made primarily by mail, but regular employees or
representatives of the Company (none of whom will receive any extra compensation
for their activities) may also solicit proxies by telephone, telegraph 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 Company. In addition, the Company 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 Company) holding sizable amounts of stock and in soliciting proxies from
them.
The Company'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 Company
had outstanding and entitled to vote 83,019,793 shares of Common Stock, par
value $.01 per share. Each outstanding share of the Company's Common Stock
entitles the holder to one vote.
2
<PAGE> 5
OWNERSHIP OF STOCK BY DIRECTORS
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, by
all stockholders of the Company known to be beneficial owners of more than 5% of
such Common Stock, by each director, 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:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF VOTING
OF COMMON STOCK* STOCK OUTSTANDING*
---------------- --------------------
<S> <C> <C>
FMR Corp. 7,749,810(a) 9.56%
82 Devonshire Street
Boston, MA 02109-3614
David Lucas 78,521(b) *
Ronald L. Rossetti 10,000(c) *
Thomas R. Shepherd 0 *
W. Harrison Wellford 38,000(d) *
Jerry D. Horn 139,180(e) *
William E. Watts 1,279,489(f) 1.5%
Louis Mancini 163,696(g) *
Edwin J. Kozlowski 208,879(h) *
John A. DiCecco 158,716(i) *
All Directors and Executive officers 2,315,925(j) 2.79%
of the Company as a group (13 persons)
</TABLE>
- ---------
* Represents less than 1%.
(a) Based on information provided by FMR Corp. on February 14, 1996. Includes
6,845,510 shares beneficially owned by Fidelity Management & Research
Company, and 904,300 shares beneficially owned by Fidelity Management Trust
Company. FMR Corp. has sole voting power with respect to 431,500 shares and
sole dispositive power with respect to 7,749,810 shares.
(b) 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 5,000 option shares which Mr. Rossetti has the right to acquire
within 60 days.
(d) Includes 10,000 option shares which Mr. Wellford has the right to acquire
within 60 days.
(e) Includes 29,835 option shares which Mr. Horn has the right to acquire within
60 days.
(f) Includes 702,584 option shares which Mr. Watts has the right to acquire
within 60 days.
(g) Includes 54,412 option shares which Mr. Mancini has the right to acquire
within 60 days.
(h) Includes 95,504 option shares which Mr. Kozlowski has the right to acquire
within 60 days.
(i) Includes 81,562 option shares which Mr. DiCecco has the right to acquire
within 60 days.
(j) Includes 1,045,392 option shares which such directors and executive
officers have the right to acquire within 60 days.
3
<PAGE> 6
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 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 new 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
<PAGE> 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 in 1989 and
amended in 1990, 1993, 1994 and 1995, which provide 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 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 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 options accomplish the third compensation objective: to align the
interests of executive officers with stockholder value.
The number of stock options granted by the Stock Option Committee 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 vests over a period
of years and in some instances such vesting is tied to the achievement of
specified performance 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, 1996 was based on the salary specified in his
employment contract described below, together with a cash incentive award in the
amount of $300,000 which was made by the Committee in recognition of the
Company's performance in fiscal 1996 and Mr. Watts' contributions to the
Company's success.
COMPENSATION COMMITTEE
Thomas H. Lee
Thomas R. Shepherd
W. Harrison Wellford
5
<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows the total amount and long-term compensation of
the Chief Executive Officer and the other four most highly compensated executive
officers of the Company.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
OTHER OPTION ALL OTHER
NAME AND BONUS ANNUAL SHARES COMPENSATION*
PRINCIPAL POSITION YEAR SALARY ($) ($)(1) COMPENSATION($)* GRANTED(2) ($)(3)
- --------------------------- ---- ---------- -------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William E. Watts 1995 $636,637 $300,000 $ 6,373 764,000 $ 9,478
President & CEO 1994 599,441 200,000 13,563 0 11,529
1993 546,028 250,000 6,434 800,000 11,223
Jerry D. Horn 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 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 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. DiCecco 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 10,022
</TABLE>
- ---------
* 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 1995 are
based on performance in 1995 and are measured and paid in 1996.
(2) The total number of options held by the persons listed in this table as 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.
(3) Includes amounts received by the persons listed in this table for (a)
"matching contributions" under the Company's Executive Retirement
Arrangement for 1995, 1994 and 1993, respectively, in the following amounts:
Mr. Watts $9,070, $11,121 and $10,815; Mr. Horn $7,465, $9,519 and $9,253;
Mr. Mancini $9,070, $11,121 and $10,815; Mr. Kozlowski $9,070, $11,121 and
$12,134; and Mr. DiCecco $9,070, $11,121 and $9,614; and (b) the dollar
value of life insurance premiums for 1995, 1994 and 1993, respectively, for
the benefit of the persons listed in this table paid by the Company in the
following amounts: Mr. Watts $408, $408, $408, Mr. Horn $1,800, $1,800 and
$1,800; Mr. Mancini $1,152, $696 and $696; Mr. Kozlowski $696, $696 and
$408; and Mr. DiCecco $408, $408 and $408.
OPTIONS GRANTS IN 1995
Information concerning 1995 grants to the President and Chief Executive
Officer and the other four most highly compensated executive officers is
provided below.
6
<PAGE> 9
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUNED
---------------------------------------------------------------- ANNUAL RATES OF STOCK
% OF TOTAL EXERCISE PRICE APPRECIATION FOR
OPTIONS OPTIONS OR MARKET PRICE OPTION TERM (2)
GRANTED GRANTED TO BASE PRICE AT DATE EXPIRATION -------------------------------------
NAME (#)(1) EMPLOYEES ($/SH) OF GRANT DATE 0% ($) 5% ($) 10% ($)
- ---- -------- ---------- ------------ ------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William E. Watts 64,000 82.3% $ 1.25 $ 21.15625 8/24/05 $1,274,000 $2,125,523 $ 3,431,927
700,000 37.4 11.88 11.88 2/27/05 0 5,229,888 13,253,562
Jerry D. Horn 48,000 2.5 11.88 11.88 2/27/05 0 358,621 908,816
Louis Mancini 2,000 2.6 1.25 19.375 1/26/05 36,250 60,620 98,008
140,000 7.5 11.88 11.88 2/27/05 0 1,045,978 2,650,712
Edwin J. Kozlowski 2,000 2.6 1.25 19.375 1/26/05 36,250 60,620 98,008
100,000 5.3 11.88 11.88 2/27/05 0 747,127 1,893,366
John A. DiCecco 60,000 3.2 11.88 11.88 2/27/05 0 448,276 1,136,020
</TABLE>
- ---------
(1) These options are fully vested.
(2) The dollar amounts under these columns are the result 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.
AGGREGATED OPTION EXERCISES AND VALUES AT FISCAL YEAR-END
The following information is furnished for the fiscal year ended February
3, 1996 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.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FEBRUARY 3, 1996 FEBRUARY 2, 1996(1)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William E. Watts 290,000 $4,877,050 760,239 815,809 $ 8,106,395 $ 9,480,561
Jerry D. Horn 250,000 3,186,302 33,442 138,791 342,034 2,105,753
Louis Mancini 53,000 1,024,235 41,602 180,110 428,052 1,912,633
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 1,150,755
</TABLE>
- ---------
(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, 1996 ($22 per share), minus the option
exercise price of $1.25 per share for shares granted under the 1989 and
1991 stock option plans, and $10.8438 for shares granted under the 1993
stock option plan.
EMPLOYMENT AGREEMENT
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. Horn and Watts. Mr. Horn's agreement, as amended
provides that he shall serve as the Chairman of the Board of GNI until January
31, 1998 at a base salary of $331,265 per annum (subject to adjustment for
future changes in the cost of living), and shall thereafter be retained by GNI
as a consultant 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. Mr. Watts' agreement, as amended, provides that he shall serve as
President
7
<PAGE> 10
and Chief Executive Officer of GNI until February 1, 2000 at a base salary of
$599,835 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 75 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.
Under such employment agreements, each of Messrs. 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.
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.
<TABLE>
<CAPTION>
General
Measurement Period Nutrition NASDAQ Dow Jones U.S.
(Fiscal Year Covered) Companies, Inc. Composite Specialty Retail
<S> <C> <C> <C>
1/21/93 100 100 100
2/5/93 142 100 102
2/4/94 353 111 89
2/5/95 314 110 96
2/3/96 550 153 88
</TABLE>
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.
8
<PAGE> 11
1996 LONG TERM INCENTIVE PROGRAM
There will be presented at the meeting a proposal to approve the Company's
1996 Long Term Incentive Program, which includes the 1996 Management and
Director Stock Purchase Plan (the "1996 Stock Purchase Plan"), and 1996
Management and Director Stock Option Plan (the "1996 Option Plan"). Both plans
were adopted by the Board of Directors on August 22, 1996, subject to
stockholder approval.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS APPROVE THE 1996 LONG
TERM INCENTIVE PROGRAM, INCLUDING THE 1996 STOCK PURCHASE PLAN AND THE 1996
OPTION PLAN.
1996 STOCK PURCHASE PLAN
The 1996 Stock Purchase Plan is intended to encourage senior management of
the Company and its affiliates and directors of the Company to own shares 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, 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,
9
<PAGE> 12
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 Company will recognize
compensation expense for financial reporting purposes in the periods in which
shares are purchased under the 1996 Stock Purchase Plan in the amount by which
the fair market value per share of the Company's Common Stock at the time of
such purchase exceeds the purchase price per share under the plan. In the case
of the first period under the plan (October 14 to October 18, 1996), such
compensation expense will be the amount by which the fair market value per share
of the Company's Common Stock on the date of stockholder approval of the 1996
Stock Purchase Plan exceeds the purchase price per share under the plan. 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. Non-officer participants may participate to one times
their annual compensation. The Compensation Committee of the Board 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 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" sale).
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 over the base market price 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.
10
<PAGE> 13
The stock appreciation hurdles to be met with respect to the forgiveness of
loans made in connection with the first purchase period (October 14 to October
18, 1996) are set forth below:
<TABLE>
<CAPTION>
LOAN
TARGET BALANCE
YEAR STOCK PRICE FORGIVEN
- ---- ----------- --------
<S> <C> <C>
1 $ 19.50 25%
2 $24.375 25%
3 $30.468 25%
4 $38.085 25%
</TABLE>
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 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 principal provisions of the 1996 Option Plan.
Such summary does not purport to be a complete statement of the plan's terms. A
copy of the entire 1996 Option Plan is available from the Secretary of the
Company upon request.
PLAN ADMINISTRATION AND AMENDMENTS
The 1996 Option Plan is administered by the Board of Directors or by a
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 Option 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' meeting, the
Company may not increase the maximum number of shares for which options may be
granted, change the designation of the class of persons eligible to receive
options under the 1996 Option Plan or change the criteria for the vesting of
options. Further, termination, modification or amendment of the 1996 Option Plan
shall not, without the consent of the optionees, affect such optionee's rights
under an option granted to him or her.
Unless sooner terminated, the 1996 Option Plan shall terminate on August
22, 2006, 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 Option
Plan are directors, officers and key employees of the Company or any subsidiary.
Options granted to eligible individuals may be either non-qualified
options, or incentive stock options within the meaning of Section 422 of the
Internal Revenue Code (the "Code").
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 Option 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
11
<PAGE> 14
potential contributions to the success of the Company or its subsidiaries and
such other factors as the Committee deems relevant.
SHARES SUBJECT TO THE 1996 OPTION PLAN
A total of 5,000,000 shares of Common Stock of the Company has been
reserved for issuance under the 1996 Option 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 Option 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 Option Plan, 2,500,000 shares are initially
available for grant thereunder, and 2,500,000 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:
<TABLE>
<CAPTION>
ADDITIONAL SHARES
BECOMING
MARKET PRICE AVAILABLE FOR
PER SHARE GRANT
- ------------ ----------------
<S> <C>
$18.60 625,000
$22.32 625,000
$26.78 625,000
$32.14 625,000
---------
Total 2,500,000
</TABLE>
As of August 22, 1996, options to purchase a total of 2,225,000 shares had
been granted, subject to stockholder approval, under the 1996 Option Plan at an
exercise price of $15.50 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 fourth 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 1996 Option Plan exceeds the
exercise price per share of the options granted on August 22, 1996. 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 500,000 shares of Common Stock, taking into account shares which were the
subject of options granted during such taxable year and subsequently terminated.
On September 30, 1996 the closing trading price of the Company's common stock on
the NASDAQ Stock Market was $17.5625 per share.
TERMS AND PROVISIONS OF OPTIONS
Of the 2,500,000 shares initially available for the grant of options under
the 1996 Option Plan, 1,250,000 shares are available for grant at a price
determined by the Board or the Committee, which price 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 (4) years commencing on the
date of grant.
The remaining 1,250,000 shares initially available for grant under the 1996
Option Plan will be granted at exercise prices determined by the Board or the
Committee, which 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 4 year period. Under the 1996 Option Plan,
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 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 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 under the 1996 Option Plan if the stock appreciation levels
specified above under "Shares Subject to the 1996 Option
12
<PAGE> 15
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 Option 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 over the four
year period commencing on the date of grant if the market price per share of the
Company's Common Stock appreciates at the rate of 20% or more in each year of
such four year period. In the event that the required level of stock
appreciation is not met in a given year, the shares which fail to vest in that
year may vest in a subsequent year if the level of stock appreciation which was
not met is achieved in a subsequent year within 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 thirty day period commencing with
the close of such four year period and thereafter shall terminate to the extent
not exercised.
The duration of any option granted under the 1996 Option Plan shall be set
forth in the Option Agreement (the "Agreement"); provided however that no option
granted under the 1996 Option Plan shall have a term in excess of ten 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 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 to 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 Option 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 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 Option Plan is approved by the
stockholders 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, 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.
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.
13
<PAGE> 16
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 Option 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 PROGRAM
The 1996 Option Plan and 1996 Stock Purchase 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 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 Purchase 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 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
Option 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 Purchase 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 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 stock outstanding.
Upon dissolution or liquidation of the Company, all options granted under
the 1996 Option Plan and 1996 Stock Purchase Plan shall terminate, that 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 PROGRAM
Options granted under the 1996 Option 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. If the optionee holds the shares
received pursuant to the exercise of the option for at least one year after the
date of exercise and for at least 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.
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 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,
14
<PAGE> 17
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
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.
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.
15
<PAGE> 18
NEW PLAN BENEFITS
It is not possible to state the persons who will receive options under the
Company's 1996 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, 1996 under
the 1996 Option Plan, subject to approval by the stockholders.
<TABLE>
<CAPTION>
1996 OPTION PLAN
---------------------------
DOLLAR NUMBER
NAME AND POSITION VALUE(1) OF UNITS(2)(3)
- ----------------- -------- --------------
<S> <C> <C>
William E. Watts, President and CEO -- 500,000
Jerry D. Horn, Chairman -- 100,000
Louis Mancini, President of GNC -- 200,000
Edwin J. Kozlowski, Executive Vice President and Chief Financial
Officer -- 150,000
John A. DiCecco, Senior Vice President of GNI -- 50,000
Executive Officers as a Group -- 1,220,000
Directors as a Group (excluding
Executive Officers) -- 40,000
Employees as a Group (excluding
Executive Officers) -- 1,005,000
</TABLE>
- ---------
(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 per share, the mean between the high
and low sales prices of the Company's Common Stock on the day prior to the
date of grant.
(3) Fifty percent of the shares subject to the options granted to the directors
executive officers and employees vest in equal daily increments over four
years, and the vesting of the options to purchase the remaining fifty
percent of such shares is dependent upon the achievement of the foregoing
performance objectives over four years. The options have a ten year term;
but the options which vest on the basis of performance objectives become
fully vested for 30 days following the expiration of four years from the
date of grant and thereafter expire if the performance objectives have not
been met.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
The Company's next Annual Meeting will be held on June 26, 1997. 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.
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 Provisions is available on request to James M. Sander,
Secretary, General Nutrition Companies, Inc., 921 Penn 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 the
enclosed proxy will vote in accordance with their best judgment.
16
<PAGE> 19
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
17
<PAGE> 20
REVOCABLE PROXY
GENERAL NUTRITION COMPANIES, INC.
This Proxy is Solicited on Behalf of the Board of Directors
To 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 Special
Meeting of Stockholders of the Company to be held at the Company's
headquarters 921 Penn Avenue, Pittsburgh, Pennsylvania on October 25,
1996 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 Special
Meeting and the Proxy Statement dated October 2, 1996 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.
<TABLE>
<S> <C>
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
</TABLE>
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting.
(Continued and to be signed and dated on reverse side)
The shares represented by this Proxy will be voted as specified. IF
NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED IN FAVOR OF PROPOSAL
NO. 1, 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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(if held jointly)
<PAGE> 21
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:
<TABLE>
<S> <C>
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.
</TABLE>
(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.
