<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 / /
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
/ / Soliciting 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):
/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:
<PAGE> 2
[GNC Live Well Logo]
GENERAL NUTRITION COMPANIES, INC.
300 SIXTH AVENUE
PITTSBURGH, PENNSYLVANIA 15222
TO OUR STOCKHOLDERS:
We are pleased to invite you to attend the General Nutrition Companies,
Inc. 1998 Annual Meeting of Stockholders, which will 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 meeting and proxy statement. The meeting will also provide an
opportunity to review with you the business and affairs of the Company and its
consolidated subsidiaries and give you an opportunity to meet 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
the 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 seeing you at the meeting.
Very truly yours,
/s/ WILLIAM E. WATTS
WILLIAM E. WATTS
President and
Chief Executive Officer
Pittsburgh, Pennsylvania
May 20, 1998
<PAGE> 3
[GNC LOGO]
GENERAL NUTRITION COMPANIES, INC.
300 SIXTH AVENUE
PITTSBURGH, PENNSYLVANIA 15222
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 25, 1998
TO ALL STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of Stockholders of General
Nutrition Companies, Inc., a Delaware corporation, will be held on Thursday,
June 25, 1998, at 10:00 a.m. Eastern Daylight Time, in the Urban Room at the
Westin William Penn Hotel, 530 William Penn Place, Pittsburgh, PA 15219.
Pursuant to the By-Laws, the Board of Directors fixed the close of business
on May 6, 1998 as the record date for determination of stockholders of the
Company entitled to receive notice of and to vote at the 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,
/s/ JAMES M. SANDER
JAMES M. SANDER
Vice President -- Law,
Chief Legal Officer and Secretary
Pittsburgh, Pennsylvania
May 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.
<PAGE> 4
GENERAL NUTRITION COMPANIES, INC.
300 SIXTH AVENUE
PITTSBURGH, PENNSYLVANIA 15222
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 25, 1998
The following statement is made in connection with solicitation of the
enclosed proxy by the Board of Directors of General Nutrition Companies, Inc.
(the "Company" or "GNCI") for use at the Annual Meeting of Stockholders. 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
receive notice of and to vote at the Annual Meeting. On May 6, 1998, there were
81,288,389 shares of Common Stock outstanding and entitled 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 accompanying form
will be voted at the meeting as specified in the proxy. If signed proxies are
returned without specification, such proxies will be voted according to the
recommendations of the Board of Directors. Those recommendations are described
later in this statement.
You may revoke your proxy at any time before its exercise by sending
written notice of revocation to the Secretary of the Company, 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 other 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 present at the meeting (i) the two nominees for election as
directors who receive the greatest number of votes cast for the election of
directors at the meeting by the shares present in person or by proxy and
entitled to vote shall be elected directors and (ii) proposals 2 and 3 must be
approved by the affirmative vote of the majority of shares 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.
2
<PAGE> 5
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.
3
<PAGE> 6
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.
4
<PAGE> 7
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 be furnished to the Company. To the
Company's knowledge, based solely on a review of copies of such reports
furnished to the Company during or with respect to the Company's most recent
fiscal year, all Section 16(a) filing requirements applicable to persons who
were, during the most recent fiscal year, officers or directors of the Company
or greater than 10% beneficial owners of its Common Stock were complied with,
except that through inadvertance one report involving one transaction concerning
an employee benefit plan was not reported on a timely basis by each of the
following persons: W. Watts, J. Horn, T. Shepherd, D. Lucas, R. Rossetti, W.
Wellford, E. Kozlowski, L. Mancini, G. Horn, J. Sander, C. Larrimer, and J. Fox.
5
<PAGE> 8
OWNERSHIP OF STOCK BY 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 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:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF VOTING
OF COMMON STOCK* STOCK OUTSTANDING*
---------------- ------------------
<S> <C> <C>
Forstmann-Leff Associates, Inc. 4,167,300(a) 5.1%
55 East 52nd Street
New 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 72,087(d) *
Ronald L. Rossetti 36,887(e) *
Thomas R. Shepherd 103,337(f) *
W. Harrison Wellford 64,887(g) *
Jerry D. Horn 99,142(h) *
William E. Watts 1,244,740(i) 1.49
Louis Mancini 81,611(j) *
Edwin J. Kozlowski 221,037(k) *
Gregory T. Horn 174,925(l) *
All Directors and Executive officers 2,516,503(m) 3.05
of the Company as a group (16 persons)
</TABLE>
- ---------
* Represents less than 1%.
(a) Based on information provided in a Schedule 13G filed with the Securities
and Exchange Commission ("SEC") on February 11, 1998. Includes 1,266,750
shares beneficially owned by FLA Asset Management, Inc.; 3,700 shares
beneficially by Forstmann-Leff Associates L.P.; and 612,175 shares
beneficially owned by FLA Advisers L.L.C. Forstmann-Leff Associates, Inc.
has sole dispositive power with respect to 2,288,375 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. Includes 16,377 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.
(f) Includes 21,377 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.
(h) Includes 10,978 option shares which Mr. Jerry Horn has the right to acquire
within 60 days.
(i) Includes 1,085,282 option shares which Mr. Watts has the right to acquire
within 60 days.
6
<PAGE> 9
(j) Includes 33,912 option shares which Mr. Mancini has the right to acquire
within 60 days.
(k) Includes 146,114 option shares which Mr. Kozlowski has the right to acquire
within 60 days.
(l) Includes 138,749 option shares which Mr. Gregory Horn has the right to
acquire within 60 days.
(m) Includes 1,749,799 option shares which such Directors and Executive Officers
have the right to acquire within 60 days.
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 current 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 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 1997.
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.
7
<PAGE> 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 Company 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 Committee. The participant's right to
exercise stock options vest 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 January 31, 1998 was based on the salary specified in his
employment contract described below. Mr. Watts' Employment Agreement with the
Company provides for a base salary of $929,700 per year.
During the fiscal 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 250,000 shares of the Company's Common 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 twenty 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 was
permitted to purchase pursuant to the 1996 Management and Director Stock
Purchase Plan, 44,351 shares of the Company's 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 R. Shepherd
David Lucas
8
<PAGE> 11
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(2)* GRANTED (3)
- ------------------ ---- ------ --- ---------------- ------- ---
<S> <C> <C> <C> <C> <C> <C>
William E. Watts 1997 $957,558 $ 0 $349,750 250,000 $397,988
President & CEO 1996 714,752 0 382,347 500,000 516,341
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
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
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
Gregory 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 104,195 69,358 4,445 52,000 58,150
</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 1997 are
based on performance in 1997 and are measured and paid in 1998.
(2) For 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
the table, respectively, 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 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 1997, 1996 and 1995, respectively, in the following amounts:
Mr. Watts $9,734, $11,683, and $9,070; Mr. Jerry Horn $7,721, $10,034, and
$7,465; Mr. Mancini $9,734, $11,683, and $9,070; Mr. Kozlowski $9,734,
$11,683, and $9,070; and Mr. Gregory Horn $4,763, $9,209, and $3,355; and
(b) the dollar value of life insurance premiums for 1997, 1996 and 1995,
respectively, for the benefit of the persons listed in this table paid by
the Company in the following amounts: Mr. Watts $696, $408, and $408; Mr.
Jerry Horn $2,808, $1,800, and $1,800; Mr. Mancini $1,152, $1,152, and
$1,152; Mr. Kozlowski $696, $696, and $696; and Mr. Gregory Horn $81, $75,
and $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
<PAGE> 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 $54,741, as reimbursement of certain
relocation expenses.
OPTIONS GRANTS IN 1997
Information concerning 1997 grants to the President and Chief Executive
Officer and the other four most highly compensated executive officers is
provided below.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
----------------------------------------------------------- ASSUMED ANNUAL RATES OF STOCK
% OF TOTAL EXERCISE MARKET PRICE APPRECIATION FOR
OPTIONS OPTIONS OR PRICE AT OPTION TERM (2)
GRANTED GRANTED TO BASE PRICE DATE OF EXPIRATION -----------------------------
NAME (#)(1) EMPLOYEES ($/SH) GRANT DATE 0% 5% ($) 10% ($)
- ---- ------ --------- ------ ----- ---- -- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William E. Watts 100,000 16% $ 22.32 $22.32 5/2/07 $0 $1,403,693 $3,557,233
75,000 12 26.78 26.78 6/25/07 0 1,263,135 3,201,032
75,000 12 32.14 32.14 11/13/07 0 1,515,950 3,841,716
Jerry D. Horn 30,000 5 22.32 22.32 5/2/07 0 421,108 1,067,170
Louis Mancini 40,000 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
Edwin J. Kozlowski 40,000 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
Gregory T. Horn 40,000 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
</TABLE>
- ---------
(1) Fifty percent of the shares subject to the options granted 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 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 results 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
<PAGE> 13
AGGREGATED OPTION EXERCISES AND VALUES AT FISCAL YEAR-END
The following information is furnished for the fiscal year ended January
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.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES JANUARY 30, 1998 JANUARY 30, 1998(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William E. Watts 545,000 $9,798,724 1,211,196 499,184 $29,037,561 $8,136,929
Jerry D. Horn 148,048 2,746,437 39,827 80,871 828,917 1,550,743
Louis Mancini 260,000 3,432,687 67,609 341,109 1,225,070 4,251,776
Edwin J. Kozlowski 124,952 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
</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, 1998 ($36.625 per share), minus the option
exercise price of $1.25 per share for shares granted under the 1989 and 1991
stock option plans, and as 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 AGREEMENTS
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 February 1, 2002 at a base salary of $300,000
for 1998, $250,000 for 1999, $200,000 for 2000, $150,000 for 2001 and $150,000
for 2002. Mr. Watts' agreement, as amended, provides that he shall serve as
President and Chief Executive Officer of GNI until February 3, 2001 at a base
salary of $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 100 hours per year. 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 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. In 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
<PAGE> 14
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.
<TABLE>
<CAPTION>
General Dow Jones
Nutrition U.S.
Measurement Period Companies, NASDAQ Specialty
(Fiscal Year Covered) Inc. Composite Retail
<S> <C> <C> <C>
1/21/93 100 100 100
2/5/93 142 100 102
2/4/94 353 111 89
2/5/96 314 110 96
2/3/97 550 153 88
2/1/97 453 197 101
1/31/98 902 231 147
</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.
CERTAIN 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
<PAGE> 15
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
1998 Management and Director Stock Option Plan (the "1998 Plan"), which 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,
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.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS APPROVE THE 1998
MANAGEMENT AND DIRECTOR STOCK OPTION PLAN.
1998 MANAGEMENT AND DIRECTOR STOCK OPTION PLAN
The 1998 Plan is intended to encourage ownership of the Company's Common
Stock by directors, executives, officers, and other key employees of the Company
and its subsidiaries, to induce qualified personnel to enter and remain in the
employ of the Company or its subsidiaries and 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 terms. Such summary does not purport to be
a complete statement of the 1998 Plan's terms. A copy of the entire 1998 Plan
may be obtained from the Secretary of the Company.
1998 PLAN ADMINISTRATION AND AMENDMENTS
The 1998 Plan is administered by the Board of Directors or by the
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 1998 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, or change the
designation of the class of persons eligible to receive options under the 1998
Plan or change the criteria for the vesting of options. Further, termination,
modification or amendment of the 1998 Plan shall not, without the consent of the
optionee, affect such optionee's rights under an option granted to him or her.
Unless sooner terminated, the 1998 Plan shall terminate on 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 1998 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").
13
<PAGE> 16
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
1998 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 1998 PLAN
A total of 2,500,000 shares of Common Stock of the Company has been
reserved for issuance under the 1998 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 1998 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 1998 Plan, 1,000,000 shares are initially available for
grant thereunder, and 1,500,000 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 January 23, 2004:
<TABLE>
<CAPTION>
ADDITIONAL SHARES
MARKET PRICE BECOMING AVAILABLE
PER SHARE FOR GRANT
--------- ---------
<S> <C>
$41.55 500,000
$49.86 500,000
$59.83 500,000
----------------
Total 1,500,000
</TABLE>
As of May 20, 1998, options to purchase a total of 1,000,000 shares had
been granted, subject to stockholder approval, under the 1998 Plan at an
exercise price of $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
150,000 shares of Common Stock, taking into account shares which were the
subject of options granted during such taxable year and subsequently terminated
or repriced. On May 6, 1998, the closing trading price of the Company's Common
Stock on the NASDAQ Stock Market was $34.25 per share.
TERMS AND PROVISIONS OF OPTIONS
Of the 1,000,000 shares initially available for the grant of options under
the 1998 Plan, 500,000 shares were granted at $34.625 per share, which was 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 500,000 shares initially available for grant under the 1998
Plan were granted at $34.625 per share, which was 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 a six (6) year period following the date
of grant. Under the 1998 Plan, such appreciation must equal or exceed 20% in
each of 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 the six year period commencing on
the date of grant, assuming that the
14
<PAGE> 17
market price per share of the Company's Common Stock achieves in such subsequent
years the level which was not met in previous years.
Options with respect to the additional 1,500,000 shares which may become
available for grant if the stock appreciation levels specified above under
"Shares Subject to the 1998 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 1998 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 if 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 within the six year 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 six year period commencing on the date of
grant, such option shall be exercisable for a thirty day period commencing with
the close of such six year period and thereafter shall terminate to the extent
not exercised.
The duration of any option granted under the 1998 Plan shall be set forth
in the Stock Option Agreement (the "Agreement"); provided, however, that no
option granted under the 1998 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 ten (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 in 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 1998 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 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 1998 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.
15
<PAGE> 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 1998 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 THE 1998 PLAN
The 1998 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 1998 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 1998 Plan
and or in the Agreement upon such sale, conveyance or change in control. Change
in control is defined in the 1998 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 1998 Plan shall terminate, and 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 THE 1998 PLAN
Options granted under the 1998 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. In addition, if the optionee
holds the shares received pursuant to the exercise of the option for more than
one year after the date of transfer of the shares and more 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
16
<PAGE> 19
or the sale 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.
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 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.
17
<PAGE> 20
NEW 1998 PLAN BENEFITS
It is not possible to state the persons who will receive options under the
Company's 1998 Stock Option Plan in the future, nor the amount of options which
will be granted thereunder. The following table provides information with
respect to options granted since the beginning of the Company's last fiscal year
through May 20, 1998 under the 1998 Plan. All such grants are subject to
stockholder approval of the 1998 Plan.
<TABLE>
<CAPTION>
1998 STOCK OPTION PLAN
----------------------
DOLLAR NUMBER OF
NAME AND POSITION VALUE(1) UNITS (2)(3)
- ----------------- -------- ------------
<S> <C> <C>
William E. Watts, President and CEO -- 150,000
Jerry D. Horn, Chairman -- 50,000
Louis Mancini, Senior Vice President of GNC -- 75,000
Edwin J. Kozlowski, Senior Vice President and Chief
Financial Officer -- 75,000
Gregory T. Horn, Chief Marketing Officer -- 75,000
Executive Officers as a Group -- 565,000
Directors as a Group (excluding Executive Officers) -- 40,000
Employees as a Group (excluding Executive Officers) -- 395,000
</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 $34.625 per share, the closing market price
of the Company's Common Stock on the day prior to the date of grant.
(3) The option granted to Mr. Watts vests as to 75,000 shares in equal daily
increments over four years and vests as to the remaining shares depending
upon the achievement of performance objectives relating to appreciation of
the market price of the Company's Common Stock over six 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 day period following the close of the sixth fiscal year
after the date of grant, if the performance objectives have not been met.
PROPOSAL 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 THE PROPOSAL.
18
<PAGE> 21
STOCKHOLDER PROPOSALS AND OTHER MATTERS
The Company's next Annual Meeting will be held on June 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 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-Laws provisions is available on request to James M. Sander,
Secretary, General Nutrition Companies, Inc., 300 Sixth Avenue, Pittsburgh,
Pennsylvania 15222.
SOLICITATION AND EXPENSES OF SOLICITATION
The enclosed proxy is solicited 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.
/s/ JAMES M. SANDER
JAMES M. SANDER
Vice President -- Law,
Chief Legal Officer and Secretary
May 20, 1998
19
<PAGE> 22
1. ELECTION OF TWO CLASS I DIRECTORS to the Board of Directors, each for a
three-year term expiring in 2001.
FOR all nominees listed below (except as marked to the contrary) [ ]
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 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.
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
corporate name by a duly 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.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned 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 shares of Common
Stock of General Nutrition Companies, Inc. (the "Company") standing on the
books of the Company in the name of the undersigned at the 1998 Annual Meeting
of Stockholders of the Company to be held in the Urban Room at the Westin
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 said
Annual Meeting. A majority of said attorneys and proxies as shall be 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 adjournment
thereof, shall have and may exercise all of the powers of such said attorneys
and proxies hereunder. The undersigned hereby acknowledges receipt of the
Notice of Annual Meeting and the Proxy Statement dated May 20, 1998 and
instructs its attorneys and proxies to vote as set forth on the Proxy, the
undersigned stockholder 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 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 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.
<PAGE> 23
REVOCABLE PROXY
GENERAL NUTRITION COMPANIES, INC.
This Proxy is Solicited on Behalf of the Board of Directors
Of 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 1998 Annual Meeting of Stockholders of the Company to be
held in the Urban Room at the Westin 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 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 Annual Meeting and the Proxy
Statement dated May 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.
<TABLE>
<S> <C> <C>
1. ELECTION OF TWO CLASS I DIRECTORS to the Board of Directors, each for a three-year term expiring in 2001.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all nominees listed below
(except as marked to the contrary)
David Lucas and W. Harrison Wellford
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee write
that nominee's name in the following space provided below.)
<TABLE>
<S> <C> <C>
2. To consider and vote upon a proposal to approve the Company's 1998 Management and Director Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
(Continued and to be signed and dated on reverse side)
<TABLE>
<S> <C> <C>
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.
</TABLE>
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.
<TABLE>
<S> <C>
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)
</TABLE>
