<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act
of 1934 [fee required]
For the fiscal year ended February 2, 1996
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [no fee required]
For the transition period from to
--------- ---------
Commission file number 1-7623
------
GENOVESE DRUG STORES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-1556812
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
80 Marcus Drive, Melville, New York 11747
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 420-1900
--------------
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- ---------------------------------- ------------------------
Class A Common Stock, $1 par value American Stock Exchange
Securities registered pursuant to section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 15, 1996 was $59,235,000
The number of shares outstanding of the registrant's two classes of common stock
as of March 15, 1996 was: Class A - 5,518,720; Class B - 5,585,309
Documents incorporated by reference: Portions of registrant's definitive proxy
statement to be filed pursuant to Regulation 14A of the Securities Act of 1934
are incorporated by reference into Part III.
<PAGE> 2
PART I
Item 1. Business
General
Genovese Drug Stores, Inc. (the "registrant"), organized in 1924, operates a
chain of retail drug and general merchandise stores primarily under the
"Genovese" name, which as of February 2, 1996 totalled 120 stores in number. Its
primary trading area covers Long Island and parts of New York City. Stores are
also located in southeastern New York and in the states of New Jersey and
Connecticut. During fiscal 1996, five stores were opened on Long Island, four in
Queens and one in Manhattan. The registrant continued a program of acquiring
independent drug stores within its marketing area, purchasing the pharmacy files
and inventory of independent drug stores, in some cases employing the pharmacist
owner/managers.
In addition, the registrant operates a mail order prescription service, one
professional photo retail store, an arts and craft store and a photo processing
facility for developing and printing film for its customers.
Operations
These stores, many of which are located in suburban areas, operate primarily on
a self-service, cash and carry basis, and, as distinguished from the typical
neighborhood drug store, service a relatively large trading area and offer a
much broader selection of merchandise. The registrant's headquarters is located
in Melville, New York.
The registrant operates a distribution center in Bohemia, New York, which is
shipping approximately seventy percent of its store requirements. Merchandise is
also purchased directly from manufacturers and other suppliers and is
drop-shipped directly to each store. The registrant's business is seasonal and
sales are normally greater during the fourth fiscal quarter of the year than
during any of the first three fiscal quarters.
Merchandising
The registrant's stores contain a prescription drug department staffed by
registered pharmacists and have a full line of prescription medicine. Besides
proprietary drugs, cosmetics and toiletries, the merchandise carried includes
housewares, hardware and small appliances, toys, books, paper goods, greeting
cards, film, tobacco products and sick room needs. Approximately fifty-four
stores offer on-site photofinishing services through the use of a In-Store Photo
Lab.
The merchandising policy of the registrant is to maximize sales volume by
offering a broad line of nationally advertised products at relatively low retail
prices, in many cases below the manufacturer's suggested retail price.
-1-
<PAGE> 3
The registrant also sells private label products in the vitamin and health and
beauty aid areas. It is the policy of the registrant to replace or return the
purchase price of any item, exclusive of prescription drugs, which proves
unsatisfactory to a customer.
The registrant advertises throughout the year to stimulate customer interest,
with particular emphasis on seasonal merchandise. Advertising is conducted
principally through newspapers, mail, advertising circulars, radio and
television.
Trademarks and Service Marks
The Genovese trademark is considered to be of material importance to the
business of the registrant. The registrant holds the rights to certain other
trademarks and service marks which the registrant also believes in the aggregate
to be essential to the conduct of its business in the areas in which its stores
are located.
Information as to Industry Segments and Product Lines
Operation of retail drug stores is the registrant's only significant industry
segment. During its last five fiscal years, the only class of similar products
sold by the registrant which contributed 10% or more to total sales and revenues
was prescription drugs, which accounted for approximately the following
percentages of total sales:
1996 36.1%
1995 35.4%
1994 34.4%
1993 33.2%
1992 31.9%
Competition
The business of the registrant is highly competitive. The registrant competes
with a wide variety of retailers including drug stores, supermarkets, department
stores and variety stores. Its competitors range from small independent stores
to large regional and national chains, some of which have far greater resources
than those of the registrant. The registrant believes that its ability to
maintain its competitive position depends upon identifying and obtaining
desirable locations for its stores, merchandising its products successfully,
pricing its merchandise competitively and providing quality services.
Environmental Control
Compliance with federal, state and local provisions which have been enacted or
adopted regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, have had no material effect upon
the capital expenditures, earnings and competitive position of the Registrant.
Employees
The registrant has approximately 4,700 full time and part time employees, of
whom approximately 4,000 are involved directly in store operations.
-2-
<PAGE> 4
Item 2. Properties
The registrant's corporate headquarters are located in Melville, New York, where
it owns a modern one-story brick building containing approximately 78,000 square
feet of floor space. A portion of the building is dedicated to the registrant's
mail order prescription division and an additional area is utlilized for the
processing of damaged merchandise returned from the registrant's stores. The
outstanding balance of the mortgage on the Melville building as of February 2,
1996 was $716,000. The registrant owns a distribution center located in Bohemia,
New York, which consists of approximately 265,000 square feet. The outstanding
balance of the mortgage on the Bohemia building as of February 2, 1996 was
$2,990,000. The registrant owns a building with approximately 7,300 square feet
of total floor space in Brooklyn, New York from which it operates a drug store
and a building in Huntington, New York from which it operates a store with
approximately 25,000 square feet of total floor space. The registrant also rents
100,000 square feet of public warehouse space for storing seasonal goods.
The 120 drug stores, the one arts & crafts store and the one professional photo
retail store operated by the registrant are located in the following areas:
Suffolk County (33), Nassau County (29), New York City (45), southeastern New
York State (4), New Jersey (4) and Connecticut (7). These stores range in
selling area from approximately 4,000 square feet to 22,000 square feet,
generally averaging about 11,000 square feet of floor space per store. Nearly
all are maintained under leases providing for terms which, in general, range
from 15 to 20 years, presently expiring at various dates from 1997 through 2021.
The photo processing plant operated by the registrant, which contains
approximately 10,000 square feet of space, is located in Glen Cove, New York,
and has a lease which expires in 2005.
The fixtures and equipment contained in these operating facilities are owned or
leased by the registrant. The registrant considers its facilities to be adequate
for its present operations and are in good condition and well maintained.
Item 3. Legal Proceedings
There are various routine lawsuits and claims pending against the registrant. In
the opinion of registrant's management, none of these actions will have a
material adverse effect on the financial position or results of operations of
the registrant.
Item 4. Submission of Matters to a Vote of Security Holders
There were no submissions of matters to a vote of stockholders to report during
the fourth quarter of the registrant's fiscal year ended February 2, 1996.
-3-
<PAGE> 5
Item 4A. Executive Officers of the Registrant
The information under this Item is furnished pursuant to Instruction 3 to Item
401(b) of Regulation S-K.
The following table sets forth the name, age, current position and principal
occupation and employment during the past five years of the registrant's
executive officers.
<TABLE>
<CAPTION>
Positions and offices held
Name of Officer with the Registrant during
Executive Officer Age Since the past five years
- ----------------- --- ------- --------------------------
<S> <C> <C> <C>
Leonard Genovese * 61 1961 Chairman of the Board of
Directors and President
Herbert J. Kett 63 1967 Vice Chairman and Director
Allan Patrick 49 1980 Executive Vice President
and Director
Jerome Stengel 59 1973 Vice President and Treasurer
and Chief Financial Officer
Donald W. Gross * 70 1979 Vice President and Secretary
Susan Crickmore 41 1993 Vice President (Prior to June
1993 held the position of Human
Resources Manager at Loral
Microwave--Narda West, a defense
concern. Prior to that, was
Personnel Director at Payless
Drug Stores Northwest, a large
drug store chain).
Thomas Esposito 63 1991 Vice President
Dominick Lettieri 53 1982 Vice President
Irwin Livon 59 1991 Vice President (Prior to
August 1991 held the position
of Vice President--Director
of General Merchandise
Division at Sweet Life Foods
in Suffield, Connecticut, a
food wholesaler).
</TABLE>
* Leonard Genovese and Donald W. Gross are brothers-in-law.
-4-
<PAGE> 6
<TABLE>
<CAPTION>
Positions and offices held
Name of Officer with the Registrant during
Executive Officer Age Since the past five years
- ----------------- --- ------- --------------------------
<S> <C> <C> <C>
Stephen H. Poolner 54 1993 Vice President (Prior to
June 1993 held the position of
Manager, Pharmacy Sales and
Services at The Stop & Shop
Supermarket Co.).
David C. Reynolds 52 1990 Vice President
Gene L. Wexler 40 1994 Vice President and General
Counsel (Prior to January 1994
was General Counsel at COS
Computer Systems Inc., a
computer leasing concern).
</TABLE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters
The Class A common stock of Genovese Drug Stores, Inc. is traded on the American
Stock Exchange (ticker symbol GDX.A). The registrant's Class B common stock is
not traded on any market and is restricted with respect to transfer (see Note 5
of the Notes to Finacial Statements).
Quarterly cash dividends aggregating $.22 per share and $.20 per share per
fiscal year (after restatement for the 10 percent stock dividends distributed in
fiscal 1996 and 1995) were paid for both Class A and Class B shares during the
years ended February 2, 1996 and February 3, 1995, respectively. The registrant
has certain loan agreements which contain covenants effectively limiting the
payment of cash dividends (see Note 2 of the Notes to Financial Statements).
High and low stock prices for the last two fiscal years were:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
----------- -----------
Fiscal
Quarter High Low High Low
------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First $ 10 $ 8 5/8 $ 11 1/2 $ 8 3/4
Second $ 10 7/8 $ 9 1/8 $ 11 1/8 $ 9 3/8
Third $ 12 1/2 $ 8 7/8 $ 10 1/2 $ 8 3/8
Fourth $ 11 1/4 $ 9 3/8 $ 10 7/8 $ 8 1/8
</TABLE>
The common stock prices, where appropriate, have been adjusted to reflect the 10
percent stock dividends distributed in fiscal 1996 and 1995.
<TABLE>
<CAPTION>
Approximate Number of
Record Stockholders
Title of Class (as of February 2, 1996)
-------------- ------------------------
<S> <C>
Common Stock:
Class A, Par Value $1.00 per share, one vote per share 1774*
Class B, Par Value $1.00 per share, ten votes per share 149
</TABLE>
* Since a portion of the Class A Common Stock is held in "street" name or
nominee name, the registrant is unable to determine the exact number of
beneficial holders.
-5-
<PAGE> 7
Item 6. Selected Financial Data
The following is a summary of operations of Genovese Drug Stores, Inc. for the
five years ended February 2, 1996.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED (a)
--------------------------------------------------------------------------------------
February 2, February 3, January 28, January 29, January 31,
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $612,279,000 $569,975,000 $489,141,000 $463,106,000 $447,159,000
Net income $ 7,607,000 $ 9,212,000 $ 8,306,000 $ 7,261,000 $ 6,658,000
Net income per common
share (b) & (c) $ .69 $ .83 $ .75 $ .66 $ .61
Total assets $204,041,000 $182,778,000 $155,444,000 $130,808,000 $132,166,000
Working capital $ 40,892,000 $ 35,839,000 $ 44,295,000 $ 39,190,000 $ 39,221,000
Long-term liabilities $ 41,455,000 $ 34,314,000 $ 36,247,000 $ 29,134,000 $ 32,433,000
Stockholders' equity $ 69,668,000 $ 64,508,000 $ 57,480,000 $ 51,205,000 $ 45,599,000
Cash dividends per
common share (c) $ .22 $ .20 $ .19 $ .17 $ .16
</TABLE>
(a) Fiscal 1995 was a 53 week year. All other fiscal years presented are 52
weeks.
(b) Stock options granted are not included as their dilutive effect was not
material during the periods presented.
(c) Adjusted, where appropriate, to reflect the effect of the 10 percent stock
dividends.
-6-
<PAGE> 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The registrant achieved record sales for the thirty-third consecutive year as
sales increased 7.4% to $612,279,000. The sales increase was lead by a 5.6%
increase in sales from stores open all of fiscal 1996 and 1995, on a comparable
52 week basis. Net income declined 17.4% to $7,607,000. On a per share basis,
net income was $.69 versus $.83 last year. Fiscal 1996 was comprised of 52 weeks
versus fiscal 1995 which was comprised of 53 weeks.
Prescription drug sales accounted for 36.1% of total sales in fiscal 1996 versus
35.4% in fiscal 1995. On a comparable 52 week basis, pharmacy sales increased
15.4% due to an increase in the number of prescriptions filled on a comparable
store basis and the incremental sales from new stores along with an increase in
the average prescription selling price. The increase in the number of
prescriptions filled is a result of the registrant's continued acceptance of
additional third party prescription plans and maturation of stores opened in
recent years. The increase in average prescription selling price is a direct
result of increases in the cost of prescription drugs.
During fiscal 1996, third party sales accounted for approximately 70% of total
prescription sales compared to approximately 62% last year. The registrant
expects this trend to continue as the number of people covered under third party
plans increases.
Sales of health and beauty care items and sundry merchandise increased by 8.0%
on a comparable 52 week basis.
The registrant's gross profit declined from 30.1% in fiscal 1995 to 29.7% in
1996. The decrease is primarily due to the effect of decreasing margins from
third party plans combined with the increased sales volume of such plans. The
decreases in the pharmacy margins were partially offset by increases in gross
margin on non-pharmacy merchandise.
The registrant uses the last-in, first-out (LIFO) method of inventory valuation,
which states cost of merchandise sold at the most recent costs. The LIFO reserve
calculated for 1996 was less than the prior year resulting in a $498,000
reduction in cost of merchandise sold. In fiscal 1995, the LIFO reserve
calculation resulted in a reduction in cost of merchandise sold of $943,000.
These reductions were the results of lower effective inflation rates caused by
reductions in acquisition costs in certain lines of merchandise.
Selling, general and administrative expenses, including occupancy costs,
increased as a percentage of sales to 27.0% in fiscal 1996 versus 26.8% in
fiscal 1995. The increase is attributable to the costs associated with the
opening of 18 new stores during fiscal 1996 and 1995 together with an increase
in the number of stores open 24 hours and the opening of in-store photo labs.
After considering the above, the registrant's efforts to control selling,
general and administrative expenses resulted in a slight decrease as a
percentage of sales on a comparable store basis.
Interest expense increased to $3.9 million from $2.6 million last year due to
higher average borrowings and higher average interest rates.
-7-
<PAGE> 9
During fiscal 1996 the registrant sold the assets of its nursing home pharmacy
division to a third party for net proceeds of approximately $3.0 million. The
Company recorded a gain of $1.3 million on the sale.
The registrant's effective tax rate decreased to 44.5% from 44.9% last year.
Liquidity and Capital Resources
As February 2, 1996, the registrant had $2,251,000 in cash compared to
$2,229,000 at February 3, 1995. Working capital levels increased to $40.9
million at February 2, 1996 versus $35.8 million at February 3, 1995.
The registrant's cash requirements arise primarily from the need to finance the
opening of new stores, remodeling of existing stores, purchase of inventory,
debt service and payment of dividends.
During fiscal 1996, operating activities provided $5.5 million compared with
$17.5 million in the prior year. This decrease was primarily a result of lower
net income, and increases in receivables and merchandise inventory.
Investing activities used $12.9 million primarily for the purchase of property
and equipment, which was partially offset by proceeds from the sale of the
registrant's nursing home pharmacy division. During fiscal 1995 investing
activities used $20.5 million primarily for the purchase of property and
equipment.
Financing activities provided $7.4 million and $4.3 million during fiscal 1996
and 1995 respectively. The proceeds were primarily the result of additional
borrowings offset by the payment of dividends and purchase of treasury stock.
As of February 2, 1996 the registrant maintained a revolving term loan agreement
and short-term lines of credit with two banks which allowed for aggregate
borrowings of $70 million. The registrant had approximately $20 million in
available credit under these facilities at February 2, 1996.
Subsequent to February 2, 1996, the registrant has entered into discussions to
restructure its debt. The registrant has received a commitment from a bank to
enter into a revolving term loan agreement and short-term line of credit which
will allow for aggregate borrowings of $50 million and is currently negotiating
the terms of a private placement of $40 million in fixed rate notes payable.
The registrant made capital expenditures of $16.0 million during fiscal 1996
compared to $20.6 million during fiscal 1995. These capital expenditures relate
primarily to the opening of new stores, the remodeling of existing stores and
improvements in the registrant's distribution center and headquarters
facilities. The registrant anticipates capital expenditures of approximately $25
million for fiscal 1997 primarily related to the opening of approximately 10 new
stores, remodeling of certain existing stores, improvements in the distribution
center and in the photo processing lab.
Management believes that its operations and capital resources will provide
sufficient cash availability to meet its liquidity needs and finance planned
growth.
-8-
<PAGE> 10
Impact of Inflation
Although inflation has slowed in recent years, it is still a factor in our
economy and the registrant continues to seek ways to mitigate its impact. To the
extent permitted by competition , the registrant passes increased costs on to
its customers by increasing sales prices over time. Sales reported in the
registrant's financial statement have increased, in an indeterminable amount,
due to increases in selling prices and sales volume.
Item 8. Financial Statements and Supplementary Data
The response to this Item is submitted in a separate section of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There was no change of accountants for the registrant within the twenty-four
months prior to the date of the most recent financial statements, nor any
disagreement on any matter of accounting principles or practices of financial
disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to members of the Board of Directors of the registrant
is contained in the Proxy Statement for the Annual Meeting of Shareholders (the
"1996 Proxy Statement") to be held on June 17, 1996, under the heading "Election
of Directors", and is incorporated herein by reference. Information regarding
the executive officers of the registrant is included as Item 4A of Part I as
permitted by Instruction 3 to Item 401(b) of Regulation S- K. The information
required by Item 405 of Regulation S-K is incorporated by reference from the
1995 Proxy Statement.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference from the 1996
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference from the 1996
Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference from the 1996
Proxy Statement.
-9-
<PAGE> 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2) - The response to this portion of Item 14 is submitted as a
separate section of this report.
(3) Listing of Exhibits
3.1 Restated Certificate of Incorporation, as filed with the Secretary
of State of the State of Delaware on June 27, 1995
3.2 By-Laws, as amended (Exhibit 3.2 of Annual Report on Form 10-K for
the year ended January 31, 1992)
3.3 By-Law Section 1.01, as amended through December 4, 1995
10.1 1984 Employee Stock Option and Stock Appreciation Rights Plan (filed
August 2, 1994 on Form S-8 Registration Statement No. 33-54857)
10.2 1987 Executive Bonus and Stock Plan, as amended through June 13,
1994 (Exhibit 10.2 of Annual Report on Form 10-K for the year ended
February 3, 1995)
10.3 Registrant's Retirement Income Plan, as amended and restated
effective as of January 1, 1989 (Exhibit 10.3 of Annual Report on
Form 10-K for the year ended February 3, 1995)
10.4 Registrant's Employee Stock Ownership Plan and Trust, as amended and
restated effective January 1, 1989 (Exhibit 10.4 of Annual Report on
Form 10-K for the year ended February 3, 1995)
10.5 Registrant's Retirement and Savings Plan, effective January 1, 1994
(Exhibit 10.5 of Annual Report on Form 10-K for the year ended
February 3, 1995)
10.6 Split Dollar Insurance Plan between Registrant and Leonard Genovese,
dated October 13, 1994 (Exhibit 10.6 of Annual Report on Form 10-K
for the year ended February 3, 1995)
10.7 Form of Severance Agreement
10.8 First Amendment to the Genovese Drug Stores Inc. Retirement Income
Plan (As amended and restated effective January 1, 1989)
10.9 Split Dollar Insurance Plan between Registrant and Leonard Genovese,
dated June 29, 1995
11 Computation of Net Income Per Common Share
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
(b) No reports on Form 8-K were filed for the twelve weeks ended February 2,
1996.
(c) Exhibits - The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules - The response to this portion of Item 14 is
submitted as a separate section of this report.
-10-
<PAGE> 12
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GENOVESE DRUG STORES, INC.
(Registrant)
Date: April 26, 1996 By: /s/ Jerome Stengel
---------------------------
Jerome Stengel
Vice President & Treasurer
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
By: /s/ Leonard Genovese April 26, 1996
--------------------------------------- -----------------
Leonard Genovese, Chairman of the Board Date
and President
(Principal Executive Officer)
By: /s/ Jerome Stengel April 26, 1996
--------------------------------------- -----------------
Jerome Stengel, Vice President & Treasurer Date
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Christopher Noonan April 26, 1996
--------------------------------------- -----------------
Christopher Noonan, Controller Date
(Principal Accounting Officer)
By: /s/ Abraham Allen April 26, 1996
--------------------------------------- -----------------
Abraham Allen, Director Date
By: /s/ Thomas M. Cooney April 26, 1996
--------------------------------------- -----------------
Thomas M. Cooney, Director Date
By: /s/ Charles Hayward April 26, 1996
--------------------------------------- -----------------
Charles Hayward, Director Date
By: /s/ Herbert J. Kett April 26, 1996
--------------------------------------- -----------------
Herbert J. Kett, Director and Date
Vice Chairman
By: /s/ William J. McKenna April 26, 1996
--------------------------------------- -----------------
William J. McKenna, Director Date
By: /s/ Thomas J. Moran April 26, 1996
--------------------------------------- -----------------
Thomas J. Moran, Director Date
By: /s/ Allan Patrick April 26, 1996
--------------------------------------- -----------------
Allan Patrick, Director and Executive Date
Vice President
By: /s/ Frances G. Wangberg April 26, 1996
--------------------------------------- -----------------
Frances G. Wangberg, Director Date
-11-
<PAGE> 13
GENOVESE DRUG STORES, INC.
MELVILLE, NEW YORK
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2), (c) and (d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
YEAR ENDED FEBRUARY 2, 1996
<PAGE> 14
GENOVESE DRUG STORES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS:
Balance Sheets, February 2, 1996 and
February 3, 1995 F-2
Statements of Income for the Years Ended
February 2, 1996, February 3, 1995 and
January 28, 1994 F-3
Statements of Stockholders' Equity for the Years
Ended February 2, 1996, February 3, 1995 and
January 28, 1994 F-4
Statements of Cash Flows for the Years Ended
February 2, 1996, February 3, 1995 and
January 28, 1994 F-6
Notes to Financial Statements F-7
SUPPLEMENTAL SCHEDULE -
Schedule I - Valuation and Qualifying Accounts for the
Years Ended February 2, 1996, February 3, 1995,
and January 28, 1994 F-15
</TABLE>
<PAGE> 15
INDEPENDENT AUDITORS' REPORT
Genovese Drug Stores, Inc.:
We have audited the accompanying financial statements of Genovese Drug Stores,
Inc., listed in the foregoing table of contents. Our audits also include the
financial statement schedule listed in the table of contents. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at February 2, 1996 and February
3, 1995, and the results of its operations and its cash flows for each of the
three fiscal years in the period ended February 2, 1996 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Jericho, New York
March 5, 1996
F-1
<PAGE> 16
GENOVESE DRUG STORES, INC.
BALANCE SHEETS
FEBRUARY 2, 1996 AND FEBRUARY 3, 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1996 1995
- ------ ---- ----
Note
----
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,251 $ 2,229
Receivables 14,396 13,966
Merchandise inventory 104,855 92,969
Prepaid expenses and other 5,089 4,650
---------- ----------
Total current assets 126,591 113,814
---------- ----------
PROPERTY AND EQUIPMENT - at cost: 2
Land 2,657 2,220
Buildings 15,099 14,182
Leasehold improvements, furniture,
fixtures and equipment 113,573 101,102
---------- ----------
Total property and equipment 131,329 117,504
Less - accumulated depreciation
and amortization 59,692 52,503
---------- ----------
Property and equipment, net 71,637 65,001
---------- ----------
OTHER ASSETS 5,813 3,963
---------- ----------
TOTAL $ 204,041 $ 182,778
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- ------------------------------------ ---- ----
Note
----
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable to banks 2 $ 15,250 $ 11,100
Accounts payable - trade 53,265 46,094
Accrued expenses 12,087 13,103
Current portion of long-term debt 2 798 847
Income taxes payable 3 1,527 4,938
Deferred income taxes 3 2,772 1,893
---------- ----------
Total current liabilities 85,699 77,975
---------- ----------
LONG-TERM LIABILITIES 2 41,455 34,314
---------- ----------
DEFERRED INCOME TAXES 3 7,219 5,981
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES 4
STOCKHOLDERS' EQUITY: 5
Common stock:
Class A, entitled to one vote per share,
20,000,000 shares authorized, 5,632,806
and 5,013,449 shares issued for 1996
and 1995, respectively 5,633 5,013
Class B, entitled to ten votes per share,
12,000,000 shares authorized, 5,603,867
and 5,160,519 shares issued for
1996 and 1995, respectively 5,604 5,161
Capital in excess of par value 56,182 45,443
Retained earnings 2 3,556 9,885
---------- ----------
70,975 65,502
Less common stock in treasury at cost:
Class A, 129,211 and 89,347 shares
for 1996 and 1995, respectively 1,284 971
Class B, 3,301 and 3,001 shares
for 1996 and 1995, respectively 23 23
---------- ----------
Total stockholders' equity 69,668 64,508
---------- ----------
TOTAL $ 204,041 $ 182,778
========== ==========
</TABLE>
See notes to financial statements.
F-2
<PAGE> 17
GENOVESE DRUG STORES, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED FEBRUARY 2, 1996, FEBRUARY 3, 1995 AND
JANUARY 28, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
Notes 1996 1995 1994
----- ---- ---- ----
<S> <C> <C> <C>
SALES $ 612,279 $ 569,975 $ 489,141
------------- ------------ ------------
COSTS AND EXPENSES:
Cost of merchandise sold 430,505 398,135 340,712
Selling, general
and administrative expenses 165,491 152,493 131,745
------------- ------------ ------------
595,996 550,628 472,457
------------- ------------ ------------
OPERATING PROFIT 16,283 19,347 16,684
INTEREST EXPENSE, net 2 3,876 2,635 1,583
GAIN ON SALE OF DIVISION 10 1,300 - -
------------- ------------ ------------
INCOME BEFORE INCOME TAXES 13,707 16,712 15,101
INCOME TAXES 3 6,100 7,500 6,795
------------- ------------ ------------
NET INCOME $ 7,607 $ 9,212 $ 8,306
============= ============ ============
NET INCOME PER COMMON SHARE $ .69 $ .83 $ .75
============= ============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE> 18
GENOVESE DRUG STORES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 2, 1996, FEBRUARY 3, 1995 AND JANUARY 28, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Stock Issued Par Capital
Value $1.00 Per Share in Excess Retained Treasury Stock at Cost
Class A Class B of Par Value Earnings Class A Class B
-------- -------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 30, 1993 (3,760,321 Class A
shares and 4,546,306 Class B shares issued;
and 11,505 Class A shares and 3,001 Class B
shares in treasury) $ 3,761 $ 4,546 $ 27,209 $ 15,780 $ 68 $ 23
Cash dividends -- -- -- (2,052) -- --
Shares issued pursuant to a 10 percent stock
dividend (391,608 Class A shares and 438,027
Class B shares) 392 438 8,919 (9,749) -- --
Stock options exercised (2,968 Class A shares) 3 -- 9 -- -- --
Shares issued pursuant to the Executive Bonus
and Stock Plan (30,327 Class A shares) 30 -- 204 -- -- --
Treasury stock purchased (19,040 Class A shares) -- -- -- -- 225 --
Exchange of shares (162,416 Class B shares for
162,416 Class A shares) 162 (162) -- -- -- --
Net income -- -- -- 8,306 -- --
-------- -------- -------- -------- -------- --------
BALANCE, JANUARY 28, 1994 (4,347,640 Class A
shares and 4,821,917 Class B shares issued;
and 30,545 Class A shares and 3,001 Class B
shares in treasury) 4,348 4,822 36,341 12,285 293 23
Cash dividends -- -- -- (2,257) -- --
Shares issued pursuant to a 10 percent stock
dividend (443,907 Class A shares and 468,809
Class B shares) 444 469 8,442 (9,355) -- --
Stock options exercised (51,821 Class A shares) 52 -- 385 -- -- --
Shares issued pursuant to the Executive Bonus
and Stock Plan (39,874 Class A shares) 39 -- 243 -- -- --
Treasury stock purchased (68,802 Class A shares) -- -- -- -- 776 --
Treasury stock contributed to the Employee Stock
Ownership Plan (10,000 Class A shares) -- -- 32 -- (98) --
Exchange of shares (130,207 Class B shares for
130,207 Class A shares) 130 (130) -- -- -- --
Net income -- -- -- 9,212 -- --
-------- -------- -------- -------- -------- --------
BALANCE, FEBRUARY 3, 1995 (5,013,449 Class A
shares and 5,160,519 Class B shares issued; and
89,347 Class A shares and 3,001 Class B shares
in treasury) $ 5,013 $ 5,161 $ 45,443 $ 9,885 $ 971 $ 23
-------- -------- -------- -------- -------- --------
</TABLE>
(Continued)
F-4
<PAGE> 19
GENOVESE DRUG STORES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 2, 1996, FEBRUARY 3, 1995 AND JANUARY 28, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Stock Issued Par Capital
Value $1.00 Per Share in Excess Retained Treasury Stock at Cost
Class A Class B of Par Value Earnings Class A Class B
-------- -------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 3, 1995 (5,013,449 Class A
shares and 5,160,519 Class B shares issued;
and 89,347 Class A shares and 3,001 Class B
shares in treasury) $ 5,013 $ 5,161 $ 45,443 $ 9,885 $ 971 $ 23
Cash dividends -- -- -- (2,488) -- --
Shares issued pursuant to a 10 percent stock
dividend (508,170 Class A shares and 509,485
Class B shares and 10,408 Class A shares and
300 Class B shares held in treasury) 508 509 10,431 (11,448) -- --
Stock options exercised (2,928 Class A shares) 3 -- 23 -- -- --
Shares issued pursuant to the Executive Bonus
and Stock Plan (42,122 Class A shares) 43 -- 285 -- -- --
Treasury stock purchased (39,456 Class A shares) -- -- -- -- 416 --
Treasury stock contributed to the Employee Stock
Ownership Plan (10,000 Class A shares) -- -- -- -- (103) --
Exchange of shares (66,137 Class B shares for
66,137 Class A shares) 66 (66) -- -- -- --
Net income -- -- -- 7,607 -- --
-------- -------- -------- -------- -------- --------
BALANCE, FEBRUARY 2, 1996 (5,632,806 Class A
shares and 5,603,867 Class B shares issued; and
129,211 Class A shares and 3,301 Class B shares
in treasury) $ 5,633 $ 5,604 $ 56,182 $ 3,556 $ 1,284 $ 23
======== ======== ======== ======== ======== ========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 20
GENOVESE DRUG STORES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 2, 1996, FEBRUARY 3, 1995 AND
JANUARY 28, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,607 $ 9,212 $ 8,306
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,523 8,769 7,263
Gain on the sale of the nursing home division (1,300) -- --
Provision for LIFO inventory valuation (498) (943) (400)
Provision for deferred income taxes 2,117 411 (456)
Provision for other noncash expenses - net 1,404 228 234
Changes in certain assets and liabilities:
Receivables (1,971) 795 (2,944)
Merchandise inventory (12,069) (11,347) (12,490)
Prepaid expenses and other (467) (1,495) 211
Other assets (2,545) (1,355) (1,477)
Accounts payable - trade 7,171 5,886 9,818
Accrued expenses and other long term liabilities (77) 4,810 (603)
Income taxes payable (3,411) 2,495 519
-------- -------- --------
Net cash provided by operating activities 5,484 17,466 7,981
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (15,969) (20,585) (14,510)
Disposal of property and equipment 68 44 31
Proceeds from the sale of the nursing home division 3,014 -- --
-------- -------- --------
Net cash used for investing activities (12,887) (20,541) (14,479)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term notes
payable to banks 4,150 8,800 2,300
Proceeds - debt agreements 35,250 19,242 25,000
Repayments - debt agreements (29,097) (21,338) (18,217)
Issuance of common stock under the Employee
Stock Option and Appreciation Rights Plan 26 83 12
Payment of cash dividends (2,488) (2,257) (2,052)
Purchase of treasury stock (416) (238) (225)
-------- -------- --------
Net cash provided by financing activities 7,425 4,292 6,818
-------- -------- --------
NET INCREASE IN CASH 22 1,217 320
CASH AT BEGINNING OF YEAR 2,229 1,012 692
-------- -------- --------
CASH AT END OF YEAR $ 2,251 $ 2,229 $ 1,012
======== ======== ========
SUPPLEMENTAL DATA:
Interest paid $ 3,900 $ 2,608 $ 1,668
======== ======== ========
Income taxes paid $ 7,002 $ 4,494 $ 6,721
======== ======== ========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 21
GENOVESE DRUG STORES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 2, 1996, FEBRUARY 3, 1995 AND
JANUARY 28, 1994
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Genovese Drug Stores, Inc. (the "Company") is primarily engaged in the
operation of a chain of super drug stores located in New York, New Jersey
and Connecticut. The accounting policies relative to the Company are as
follows:
a. Receivables - A majority of the Company's receivables are due from
third-party providers (various insurance companies, benefit
management companies and governmental agencies). As is industry
practice, these receivables are uncollateralized. As of February
2, 1996 approximately 12.0 percent of receivables were due from a
state welfare organization and 14.6 percent were due from a
prescription benefits management company.
b. Merchandise Inventory - Merchandise inventory is valued at the
lower of cost, determined on the last-in, first-out ("lifo")
method, or market. If the inventory at February 2, 1996 and
February 3, 1995 had been valued at year-end replacement costs,
its value would have increased $18,950,000 and $19,448,000,
respectively. As a result of a reduction in the lifo reserve, net
income increased in fiscal 1996 and 1995 by approximately $276,000
and $520,000, respectively.
c. Depreciation and Amortization - Depreciation and amortization are
determined by the straight-line method based on the estimated
useful lives of the related items, such lives ranging from 3 to 35
years.
d. Intangible Assets - Intangible assets are being amortized over the
estimated lives of the related assets, such lives ranging from 5
to 20 years.
e. Income Taxes - Deferred income taxes result from the recognition
of income and expense in different periods for tax return and
financial reporting purposes.
f. Net Income Per Common Share - Net income per common share is based
on the average number of shares outstanding, after retroactive
restatement for the 10 percent stock dividends distributed in each
of fiscal 1996, 1995 and 1994. The weighted average number of
shares, as adjusted, used in computing net income per common share
was 11,086,000 in 1996, 11,059,000 in 1995 and 11,049,000 in 1994.
The dilutive effect of outstanding common stock options was not
material during any period presented.
g. Fiscal Year - The Company's fiscal year ends on the Friday closest
to January 31. The fiscal year ended February 3, 1995 was
comprised of 53 weeks.
h. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the
reported amounts of assets and liabilities at the date of the
financial statements and statements of income during the periods
presented. Actual results could differ from those estimates.
F-7
<PAGE> 22
i. Stock Options - In 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." This standard
established a fair value method for stock-based compensation
plans, including stock option plans, either through recognition or
disclosure. The Company intends to adopt this standard in fiscal
1997 by disclosing the pro forma net income and earnings per share
amounts assuming the fair value method was adopted as of the
beginning of fiscal 1996. The adoption of this standard will not
impact the Company's results of operations, financial position or
cash flows.
j. Disclosure of Fair Value of Financial Instruments - Management of
the Company believes that the fair value of financial instruments
approximates their market value as of February 2, 1996 and
February 3, 1995.
k. Reclassification - Certain amounts in the 1995 and 1994 financial
statements have been reclassified to conform with the 1996
presentation.
2. LONG-TERM LIABILITIES AND NOTES PAYABLE TO BANKS
Long-term liabilities consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Revolving term loan agreement with banks $35,000 $28,000
1985 Industrial Development Revenue Bond 2,990 3,598
1982 Industrial Development Revenue Bond 716 825
Other 551 681
------- -------
Aggregate debt 39,257 33,104
Less - current maturities 798 847
------- -------
Long-term debt 38,459 32,257
Other long-term liabilities 2,996 2,057
------- -------
Total long-term liabilities $41,455 $34,314
======= =======
</TABLE>
Revolving Term Loan Agreement
As of February 2, 1996, the Company maintained a revolving term loan
agreement with two banks under which the banks were committed to lend up
to $45,000,000 to the Company. As part of these agreements, the Company
was obligated to pay a commitment fee of .375 percent of the unused
portion of the commitment. Borrowings under these agreements bore
interest at fifty basis points below the banks' prime lending rate (8.25
percent at February 2, 1996) or seventy-five basis points over the London
Interbank Offered Rate ("LIBOR").
In addition, the Company maintained a short-term line of credit with two
banks under which the banks will lend up to $25,000,000 to the Company,
with interest at fifty basis points below the banks' prime lending rate
or seventy-five basis points over LIBOR.
Information on short-term borrowings and interest rates follows (dollars
in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Maximum amount outstanding $29,750 $24,650 $6,450
Average daily short-term borrowings $17,797 $13,848 $1,673
Weighted average daily interest rate 6.7% 6.0% 4.4%
</TABLE>
F-8
<PAGE> 23
The loan agreements contain certain covenants which include (i)
maintenance of certain financial ratios, (ii) maintenance of certain
amounts of working capital and net worth, (iii) limitations on capital
expenditures, (iv) limitations on the payment of dividends, (v)
limitations on other indebtedness, (vi) restrictions on the disposal of
assets, and (vii) limitations on corporate reorganizations. The Company
has received waivers from the debt holders as to noncompliance with
certain of the aforementioned covenants.
Subsequent to year end, the Company received a commitment from a bank to
enter into a revolving term loan agreement under which the Company may
borrow up to $35,000,000 on an unsecured basis. Borrowings under this
agreement will bear interest at seventy-five basis points below the
bank's prime lending rate or fifty basis points over LIBOR, and will be
due in fiscal 2001. As part of this facility, the Company will pay a
commitment fee of .125 percent of the unused portion of this commitment.
Additionally, the Company will have available up to $15,000,000 under a
short-term line of credit with interest at seventy-five basis points
below the bank's prime lending rate or fifty basis points over LIBOR.
The revised loan agreements contain covenants which include (i) the
maintenance of certain financial ratios, (ii) the maintenance of certain
amounts of tangible net worth, (iii) limitations on capital expenditures,
(iv) limitations on other indebtedness, (v) limitations on the payment of
dividends and purchase of treasury stock, (vi) limitations on the
disposal of assets, and (vii) limitations on corporate reorganizations.
Industrial Development Revenue Bonds
The 1985 Industrial Development Revenue Bond bears interest at 72% of the
prime lending rate (5.94 % at February 2, 1996), is payable in equal
monthly installments through January 2001 and is secured by land and
building, with an aggregate carrying value of $8,223,000, which were
purchased substantially with the bond proceeds.
The 1982 Industrial Development Revenue Bond bears interest at 65% of the
prime lending rate (5.36% at February 2, 1996), is payable in equal
monthly installments through August 2002 and is secured by land, building
and equipment, with an aggregate carrying value of $2,781,000, which were
purchased substantially with the bond proceeds.
Other long-term liabilities consist of (i) retirement benefits payable to
certain executives, (ii) an accrual for the noncash portion of rental
payments and (iii) an accrual for insurance.
Interest expense aggregated approximately $3,902,000, $2,635,000 and
$1,583,000 in 1996, 1995 and 1994, respectively.
The aggregate debt maturities subsequent to February 2, 1996 are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Fiscal Year Total
----------- -----
<S> <C>
1997 $ 798
1998 871
1999 885
2000 806
2001 35,717
Thereafter 180
-------
Total $39,257
=======
</TABLE>
F-9
<PAGE> 24
3. INCOME TAXES
The provision (benefit) for income taxes consist of the following
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 2,683 $ 4,723 $ 4,918
State and local 1,300 2,366 2,333
Deferred 2,117 411 (456)
-------- --------- ---------
Total $ 6,100 $ 7,500 $ 6,795
======== ========= =========
</TABLE>
The components of the deferred tax provision (benefit) consist of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Inventory $2,023 $ 794 $(982)
Accrued expenses not currently deductible 146 (612) (40)
Excess of tax over book depreciation (128) 172 479
Other-net 76 57 87
------ ----- -----
$2,117 $ 411 $(456)
====== ===== =====
</TABLE>
The components of the deferred tax liability at February 2, 1996 and
February 3, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Excess of tax over book depreciation $6,147 $ 6,275
Inventory 4,237 2,214
Accrued expenses not currently deductible (870) (1,016)
Other - net 477 401
------ -------
$9,991 $ 7,874
====== =======
</TABLE>
The Company's effective income tax rate differs from the Federal
statutory rate. The reasons for this difference are as follows (dollars
in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Federal statutory rate $4,797 35.0 $5,849 35.0 $5,134 34.0
Increases due to:
State and local taxes - net of
Federal income tax benefits 1,224 8.9 1,554 9.3 1,480 9.8
Other - net 79 .6 97 .6 181 1.2
------ ---- ------ ---- ------ ----
Effective rate $6,100 44.5 $7,500 44.9 $6,795 45.0
====== ==== ====== ==== ====== ====
</TABLE>
F-10
<PAGE> 25
4. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is required to make rental payments under noncancelable
operating leases covering retail stores and certain equipment.
Substantially all real estate leases include renewal options of five to
twenty years and require additional rentals based on a percentage of
sales and increases in real estate taxes. Rent expense for retail stores
and equipment was $24,221,000 in 1996, $23,377,000 in 1995 and
$20,435,000 in 1994. The contingent portion of rent expense amounted to
$877,000, $902,000 and $695,000 in 1996, 1995 and 1994, respectively.
Minimum rental commitments at February 2, 1996 under all noncancelable
operating leases are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Fiscal Year Total
----------- -----
<S> <C> <C>
1997 $ 20,041
1998 20,562
1999 19,661
2000 19,011
2001 17,594
2002-2006 69,515
2007-2011 42,056
2012-2016 14,436
2017-2021 1,712
--------
Total $224,588
========
</TABLE>
The minimum rental commitments above do not include contingent amounts
due of approximately $1,394,000 if the purchasers of stores sold by the
Company were to default on the lease obligations assumed.
The Company has been named as a defendant in certain claims and lawsuits
incidental to the Company's business. Management of the Company, based
upon discussions with legal counsel, believes that the ultimate
resolution of such claims and lawsuits will not result in any material
adverse effect on the Company's financial position or results of
operations.
5. COMMON STOCK
During fiscal 1996, the stockholders of the Company ratified an amendment
to the Company's Certificate of Incorporation which increased the number
of authorized Class A common stock from 12,000,000 shares to 20,000,000
shares. The par value of both classes of common stock is $1.00 per share.
The Class A common stock entitles the holders to one vote per share. The
Class B common stock entitles the holders to 10 votes per share. The
Class B common stock is restrictive with respect to transfer. Upon the
sale or change in beneficial ownership of a share of Class B common
stock, the purchaser or new beneficial owner shall only be entitled to
receive Class A common stock, except in certain instances.
Neither class will have preference over the other with regard to
dividends or upon liquidation.
During fiscal 1996, 1995 and 1994, the Company's Board of Directors
declared and effected 10 percent stock dividends. Common share amounts
and per common share amounts have been retroactively adjusted to reflect
the effect of the above-mentioned 10 percent stock dividends where
appropriate.
As of February 2, 1996, under the Company's 1984 Employee Stock Option
and Appreciation Rights Plan (the "Option Plan"), approximately 650,000
shares of Class A common stock were reserved for future issuance under
options granted but not exercised or to be granted for periods of up to
five years at an exercise price not less than the fair market value of
the shares
F-11
<PAGE> 26
at the date of grant. The Company makes no charge to income in connection
with the Option Plan, but does record the tax benefit of the difference
between the option price and the market value at the date of exercise in
capital in excess of par value ($5,000, $100,000 and $10,000 in 1996,
1995 and 1994, respectively).
Additional information regarding the Option Plan follows (amounts have
been restated to reflect the 10 percent stock dividends distributed in
fiscal 1996, 1995 and 1994):
<TABLE>
<CAPTION>
Number Exercise
of Shares Price Range
--------- -----------
<S> <C> <C>
Outstanding options for shares of
Class A common stock-January 30, 1993 284,246 $ 3.95 - $ 9.11
Exercised (10,709) 4.35 - 5.90
Canceled and expired (21,961) 6.92 - 8.28
------- ---------------
Outstanding options for shares of
Class A common stock- January 28, 1994 251,576 3.95 - 9.11
Granted 151,250 10.75 - 10.85
Exercised (57,437) 3.95 - 5.90
Canceled & expired (7,986) 10.75
------- ---------------
Outstanding options for shares of
Class A common stock-February 3, 1995 337,403 5.90 - 10.85
Granted 144,760 9.66 - 10.25
Exercised (3,221) 5.90
Canceled & expired (7,436) 9.66 - 10.75
------- ---------------
Outstanding options for shares of
Class A common stock-February 2, 1996 471,506 $ 6.92 - $10.85
======= ===============
Exercisable at February 2, 1996 471,506
=======
</TABLE>
6. PENSION PLAN
In an earlier year, the Company elected to freeze the accumulation of
retirement benefits in the Retirement Income Pension Plan (the "Plan") as
of December 31, 1988. The adoption of this amendment has resulted in the
freezing of the maximum benefits available to employees covered by the
Plan as of December 31, 1988.
Net pension expense for 1996, 1995 and 1994 was $108,000, $78,000 and
$69,000, respectively.
The components of net pension expense for 1996, 1995 and 1994 are
summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest cost on projected
benefit obligations $ 207 $ 204 $ 196
Expected return on plan assets (160) (177) (180)
Other - net 61 51 53
----- ----- -----
Net pension expense $ 108 $ 78 $ 69
===== ===== =====
</TABLE>
F-12
<PAGE> 27
The funded status of the plan and the amounts included in the
accompanying balance sheets as of February 2, 1996 and February 3, 1995
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Assets and obligation:
Actuarial present value of the projected benefit obligation -
Vested employees $(2,896) $(2,491)
------- -------
Projected benefit obligations (2,896) (2,491)
Plan assets at fair value 2,494 2,125
Items not yet recognized in earnings:
Unrecognized net obligations at transition date, net of
accumulated amortization of $906 and $867 in 1996 and
1995, respectively 320 359
Unrecognized net loss subsequent to transition date 555 428
------- -------
Prepaid pension expense included in the accompanying
balance sheets $ 473 $ 421
======= =======
</TABLE>
Plan assets are invested primarily in bank pooled equity funds, bank
fixed income funds, the Company's Class A common stock and a money market
account. At February 2, 1996 the Plan held approximately 29,000 shares of
the Company's Class A common stock.
Significant assumptions used in determining net periodic pension expense
and related prepaid pension expense were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.5% 8.7% 7.5%
Expected long-term rate of return on assets 7.5% 8.0% 7.5%
</TABLE>
Unrecognized net obligations at transition date are being amortized over
33.57 years and unrecognized gains and losses subsequent to transition
date are being amortized over 17 years.
7. EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an Employee Stock Ownership Plan (the "ESOP"), a defined
contribution plan, for the benefit of all employees meeting certain
minimum service requirements. Contributions to the ESOP are determined
annually and are made at the discretion of the Company's Board of
Directors. The ESOP's investments consists primarily of Class A common
stock of the Company. The Company provided for a contribution of $103,000
in 1996, $130,000 in 1995 and $200,000 in 1994. At February 2, 1996, the
ESOP held approximately 370,000 shares of the Company's Class A common
stock.
8. INCENTIVE COMPENSATION PLAN
The 1987 Executive Bonus and Stock Plan (the "Executive Plan") allows the
Compensation Committee of the Board of Directors of the Company to grant
to certain executives of the Company awards based upon the achievement of
certain targeted performance levels. Fifty percent of such awards shall
be paid in cash and the balance shall be paid in Class A common stock of
the Company over a four year period in five equal installments of twenty
percent, assuming the continued employment of such executives. The
Company has reserved approximately 300,000 shares of Class A common stock
to be awarded under the Executive Plan. For fiscal year 1996, no awards
were authorized. As of February 2, 1996, 24,418 shares of Class A common
stock from the fiscal 1995 award will be issuable in three equal
installments to certain executives over the next three years, 18,967
shares of Class A common stock from
F-13
<PAGE> 28
the fiscal 1994 award will be issuable in equal installments to certain
executives in the next two years and 8,429 shares of Class A common stock
from fiscal 1993 award will be issuable in the next year. The Company
records the compensation expense related to the 24,418, 18,967 and 8,429
undistributed shares of Class A common stock as such shares are vested in
by the executives.
9. RETIREMENT AND SAVINGS PLAN
During fiscal 1991, the Company adopted the Genovese Retirement and
Savings Plan (the "Savings Plan"), a contributory savings plan under
Section 401(k) of the Internal Revenue Code, for the benefit of all
employees meeting certain minimum service requirements. The Company's
contribution under the Savings Plan, which amounts to 50 percent of the
employees' contribution up to a maximum of two percent of the employees'
compensation, was $373,000 in 1996, $352,000 in 1995 and $343,000 in
1994.
10. GAIN ON THE SALE OF DIVISION
During fiscal 1996, the Company sold the assets of its nursing home
pharmacy division to a third party for net proceeds of approximately
$3,014,000. The Company recorded a gain of $1,300,000 on the sale.
11. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data for the years ended February 2, 1996
and February 3, 1995 follows (dollars in thousands, except per common
share amounts):
<TABLE>
<CAPTION>
SIXTEEN WEEKS TWELVE WEEKS TWELVE WEEKS TWELVE WEEKS FISCAL YEAR
ENDED ENDED ENDED ENDED ENDED
MAY 26, AUGUST 18, NOVEMBER 10, FEBRUARY 2, FEBRUARY 2,
1995 1995 1995 1996 1996
------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Sales $178,983 $138,266 $137,719 $157,311 $612,279
======== ======== ======== ======== ========
Gross Profit $ 50,744 $ 39,897 $ 41,975 $ 49,158 $181,774
======== ======== ======== ======== ========
Net Income $ 1,543 $ 1,273 $ 1,788 $ 3,003 $ 7,607
======== ======== ======== ======== ========
Net Income
Per Common
Share (a) $ .14 $ .12 $ .16 $ .27 $ .69
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SIXTEEN WEEKS TWELVE WEEKS TWELVE WEEKS THIRTEEN WEEKS FISCAL YEAR
ENDED ENDED ENDED ENDED ENDED
MAY 20, AUGUST 12, NOVEMBER 4, FEBRUARY 3, FEBRUARY 3,
1994 1994 1994 1995 1995
------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Sales $159,456 $125,381 $126,728 $158,410 $569,975
======== ======== ======== ======== ========
Gross Profit $ 46,494 $ 36,897 $ 39,073 $ 49,376 $171,840
======== ======== ======== ======== ========
Net Income $ 1,698 $ 1,438 $ 1,982 $ 4,094 $ 9,212
======== ======== ======== ======== ========
Net Income
Per Common
Share (a) $ .16 $ .13 $ .18 $ .36 $ .83
======== ======== ======== ======== ========
</TABLE>
(a) Adjusted, where appropriate, to reflect the effect of the 10 percent
stock dividends distributed in both fiscal 1996 and 1995.
******
F-14
<PAGE> 29
SCHEDULE I
GENOVESE DRUG STORES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND AMOUNTS AT END OF
DESCRIPTIONS OF PERIOD EXPENSES WRITTEN-OFF PERIOD
------------ ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED FEBRUARY 2, 1996:
Allowance for doubtful accounts $299 $1,195 $222 $1,272
==== ====== ==== ======
YEAR ENDED FEBRUARY 3, 1995:
Allowance for doubtful accounts $340 $ - $ 41 $ 299
==== ====== ==== ======
YEAR ENDED JANUARY 28, 1994:
Allowance for doubtful accounts $334 $ 25 $ 19 $ 340
==== ====== ==== ======
</TABLE>
F-15
<PAGE> 30
Index to Exhibits
3.1 Restated Certificate of Incorporation, as filed with the Secretary
of State of the State of Delaware on June 27, 1995
3.2 By-Laws, as amended (Exhibit 3.2 of Annual Report on Form 10-K for
the year ended January 31, 1992)
3.3 By-Law Section 1.01, as amended through December 4, 1995
10.1 1984 Employee Stock Option and Stock Appreciation Rights Plan
(filed August 2, 1994 on Form S-8 Registration Statement No.
33-54857)
10.2 1987 Executive Bonus and Stock Plan, as amended through June 13,
1994 (Exhibit 10.2 of Annual Report on Form 10-K for the year
ended February 3, 1995)
10.3 Registrant's Retirement Income Plan, as amended and restated
effective as of January 1, 1989 (Exhibit 10.3 of Annual Report on
Form 10-K for the year ended February 3, 1995)
10.4 Registrant's Employee Stock Ownership Plan and Trust, as amended
and restated effective January 1, 1989 (Exhibit 10.4 of Annual
Report on Form 10-K for the year ended February 3, 1995)
10.5 Registrant's Retirement and Savings Plan, effective January 1,
1994 (Exhibit 10.5 of Annual Report on Form 10-K for the year
ended February 3, 1995)
10.6 Split Dollar Insurance Plan between Registrant and Leonard
Genovese, dated October 13, 1994 (Exhibit 10.6 of Annual Report on
Form 10-K for the year ended February 3, 1995)
10.7 Form of Severance Agreement
10.8 First Amendment to the Genovese Drug Stores Inc. Retirement Income
Plan (As amended and restated effective January 1, 1989)
10.9 Split Dollar Insurance Plan between Registrant and Leonard
Genovese, dated June 29, 1995
11 Computation of Net Income Per Common Share
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
GENOVESE DRUG STORES, INC.
The date of filing of the original Certificate of Incorporation of
Genovese Drug Stores, Inc. with the Secretary of State of the State of Delaware
was June 11, 1986. This Restated Certificate of Incorporation has been duly
adopted in accordance with the provisions of Section 245 of the General
Corporation Law of the State of Delaware. This Restated Certificate of
Incorporation only restates and integrates and does not further amend the
provisions of the corporation's Certificate of Incorporation as heretofore
amended, and there is no discrepancy between those provisions and the provisions
of this Restated Certificate of Incorporation.
It is hereby certified that:
FIRST: The name of the corporation (hereinafter called the
"corporation") is:
GENOVESE DRUG STORES, INC.
SECOND: The address, including street, number, city and county, of the
registered office of the corporation in the State of Delaware is 32 Loockerman
Square, Suite L-100, Dover, Delaware 19904, and the name of the registered agent
of the corporation in the State of Delaware at such address is The Prentice-Hall
Corporation Systems, Inc.
THIRD: The purpose for which the corporation is formed is to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: The Capital Stock of the corporation shall consist of
32,000,000 shares, par value $1.00 per share, all of which shall be known as
Common Stock. The Common Stock shall be divided into two classes known as Class
A Common Stock and Class B Common Stock.
(a) Class A Common Stock shall consist of 20,000,000 shares, par value
$1.00 per share. Every stockholder of record of Class A Common Stock
shall be entitled to one vote per share in person or by proxy on each
matter submitted to a vote of the stockholders for each share of the
Class A Common Stock held by such holder as of the record date of such
meeting.
(b) Class B Common Stock shall consist of 12,000,000 shares, par value
$1.00 per share. Every shareholder of record of Class B Common Stock
shall be entitled to ten votes per share in person or by proxy on each
matter submitted to a vote of the shareholders for each share of the
Class B Common Stock held by such holder as of
<PAGE> 2
the record date of such meeting.
(c) No additional Class B Common Stock shall be issued except under the
following conditions:
(i) Stock dividends with respect to Class B shares;
(ii) Stock splits with respect to Class B shares;
(iii) To a transferee of any shares of Class B Common Stock
who acquires said shares by gift, devise, or
otherwise through the laws of inheritance, descent or
distribution from an estate of a grantor or to a
trust beneficiary or beneficiaries by a trustee
holding such share of Common Stock for said
beneficiary shall be deemed to be the same
"beneficial owner" as the transferor;
For the purposes of subsection (i) of this subparagraph (c), dividends
in respect of the Class B Common Stock may be paid in shares of Class A
Common Stock, shares of Class B Common Stock or any other cash,
property or other securities of the corporation in accordance with
applicable law.
(d) All other shares issued shall be Class A Common Stock.
FIFTH: The number of directors shall be a minimum of three and a
maximum of fifteen. Upon the election of nine directors, the said directors
shall be divided into three classes consisting of three directors in each class;
the terms of office of the directors initially classified shall be as follows:
the first class shall expire at the next annual meeting of the shareholders, the
second class at the second succeeding annual meeting and the third class at the
third succeeding annual meeting; at each annual meeting of shareholders after
the initial classification, directors to replace those whose terms expire at
such annual meeting shall be elected to hold office until the third succeeding
annual meeting of shareholders.
SIXTH: Each person who is or was or has agreed to become a director or
officer of the corporation, or each such person who is or was serving or who had
agreed to serve at the request of the Board of Directors or an officer of the
corporation as an employee or agent of the corporation or as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust or other enterprise (including the heirs, executors, administrators or
estate of such person), shall be indemnified by the corporation to the full
extent permitted by the General Corporation Law of the State of Delaware or any
other applicable laws as presently or hereafter in effect. The corporation will
advance expenses for any director, officer, employee or agent's defense prior to
a final disposition of a claim provided such party executes an undertaking to
repay advances from the corporation if it is ultimately determined that such
party is not entitled to indemnity. Without limiting the generality or effect of
the foregoing, the corporation may enter into one or more agreements
-2-
<PAGE> 3
with any person which provide for indemnification different than that provided
in this Article. Any repeal or modification of this Article shall not adversely
affect any right or protection existing hereunder immediately prior to such
repeal or modification.
SEVENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Article SEVENTH.
EIGHTH: In furtherance and not in limitation of the rights, powers,
privileges, and discretionary authority granted or conferred by the General
Corporation Law of the State of Delaware or other statutes or laws of the State
of Delaware, the Board of Directors is expressly authorized to adopt, amend or
repeal the by-laws of the corporation, without any action on the part of the
stockholders of the corporation, but the stockholders may make additional
by-laws and may alter, amend, or repeal any by-law whether adopted by them or
otherwise.
NINTH: To the full extent permitted by the General Corporation Law of
the State of Delaware or any other applicable laws presently or hereafter in
effect, no director of the corporation shall be personally liable to the
corporation or its stockholders for or with respect to any acts or omissions in
the performance of his or her duties as a director of the corporation. Any
repeal or modification of this Article shall not adversely affect any right or
protection of a director of the corporation existing immediately prior to such
repeal or modification.
Signed on June 23, 1995.
/s/ Gene L. Wexler
--------------------------------
Gene L. Wexler
Vice President, General Counsel,
and Assistant Secretary
-3-
<PAGE> 1
Exhibit 3.3
Genovese Drug Stores, Inc.
Restated Section 1.01 of By-Laws
Section 1.01. Annual Meetings. Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, may be called by the directors or any officer instructed by the
directors to call the meeting and shall be held at such place, either within or
without the State of Delaware, and at such time and date as the Board of
Directors, by resolution, shall determine and as set forth in the notice of
the meeting.
<PAGE> 1
EXHIBIT 10.7
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of June 13, 1995,
by and between Genovese Drug Stores, Inc., a Delaware corporation (the
"Company"), and (the "Executive").
WITNESSETH:
WHEREAS, the Executive is a senior executive of the Company and has
made and is expected to continue to make major contributions to the short- and
long-term profitability, growth and financial strength of the Company;
WHEREAS, the Company recognizes that, as is the case for most publicly
held companies, the possibility of a Change in Control (as defined below)
exists;
WHEREAS, the Company desires to assure itself of both present and
future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executives, including the
Executive, applicable in the event of a Change in Control;
WHEREAS, the Company wishes to ensure that its senior executives are
not practically disabled from discharging their duties in respect of a proposed
or actual transaction involving a Change in Control; and
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Certain Defined Terms. In addition to terms defined elsewhere
herein, the following terms have the following meanings when used in this
Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a rate not
less than the Executive's annual fixed or base compensation as in effect
for Executive immediately prior to the occurrence of a Change in Control or
such higher rate as may be determined from time to time by the Board of
Directors of the Company (the "Board") or a committee thereof.
(b) "Cause" means that, prior to any termination pursuant to Section
3(b), the Executive shall have committed:
(i) an intentional act of fraud, embezzlement or theft in
connection with his duties or in the course of his employment with the
Company or any Subsidiary;
<PAGE> 2
(ii) intentional wrongful damage to property of the Company or any
Subsidiary;
(iii) intentional wrongful disclosure of secret processes or
confidential information of the Company or any Subsidiary; or
(iv) intentional wrongful engagement in any Competitive Activity;
and any such act shall have been materially harmful to the Company. For
purposes of this Agreement, no act or failure to act on the part of the
Executive shall be deemed "intentional" if it was due primarily to an error
in judgment or negligence, but shall be deemed "intentional" only if done
or omitted to be done by the Executive not in good faith and without
reasonable belief that his action or omission was in the best interest of
the Company. Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for "Cause" hereunder unless and until there
shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three quarters of the
Board then in office at a meeting of the Board called and held for such
purpose, after reasonable notice to the Executive and an opportunity for
the Executive, together with his counsel (if the Executive chooses to have
counsel present at such meeting), to be heard before the Board, finding
that, in the good faith opinion of the Board, the Executive had committed
an act constituting "Cause" as herein defined and specifying the
particulars thereof in detail. Nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or propriety of any
such determination.
(c) "Change in Control" means the occurrence during the Term of any of
the following events:
(i) The Company is merged, consolidated or reorganized into or
with another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities entitled to vote
generally in the election of directors ("Voting Stock") of such corporation
or person immediately after such transaction are held in the aggregate by
the holders of Voting Stock of the Company immediately prior to such
transaction;
(ii) The Company sells or otherwise transfers all or substantially
all of its assets to another corporation or other legal person, and as a
result of such sale or transfer less than a majority of the combined voting
power of the then-outstanding Voting Stock of such corporation or person
immediately after such sale or transfer is held in the
2
<PAGE> 3
aggregate by the holders of Voting Stock of the Company immediately prior
to such sale or transfer;
(iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as promulgated pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
disclosing that any person (as the term "person" is used in Section
13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial
owner (as the term "beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act) of
securities representing 20% or more of the combined voting power of the
then-outstanding Voting Stock of the Company;
(iv) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act disclosing
in response to Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) that a change in control of the Company has
occurred or will occur in the future pursuant to any then-existing contract
or transaction; or
(v) If, during any period of two consecutive years, individuals
who at the beginning of any such period constitute the Directors of the
Company cease for any reason to constitute at least a majority thereof;
provided, however, that for purposes of this clause (v) each Director who
is first elected, or first nominated for election by the Company's
stockholders, by a vote of at least two-thirds of the Directors of the
Company (or a committee thereof) then still in office who were Directors of
the Company at the beginning of any such period will be deemed to have been
a Director of the Company at the beginning of such period.
Notwithstanding the foregoing provisions of Section 1(c)(iii) or 1(c)(iv),
unless otherwise determined in a specific case by majority vote of the
Board, a "Change in Control" shall not be deemed to have occurred for
purposes of Section 1(c)(iii) or 1(c)(iv) solely because (A) the Company,
(B) an entity in which the Company directly or indirectly beneficially owns
50% or more of the outstanding Voting Stock (a "Subsidiary"), or (C) any
Company-sponsored employee stock ownership plan or any other employee
benefit plan of the Company or any Subsidiary either files or becomes
obligated to file a report or a proxy statement under or in response to
Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) under the Exchange Act disclosing
beneficial ownership by it of shares of Voting Stock, whether in excess of
20% or otherwise, or because the Company reports that a change in control
of the Company has occurred or will occur in the future by reason of such
beneficial ownership.
3
<PAGE> 4
(d) "Competitive Activity" means the Executive's participation, without
the written consent of an officer of the Company, in the management of any
business enterprise if such enterprise engages in substantial and direct
competition with the Company and such enterprise's sales of any product or
service competitive with any product or service of the Company amounted to
10% of such enterprise's net sales for its most recently completely fiscal
year and if the Company's net sales of said product or service amounted to
10% of the Company's net sales for its most recently completed fiscal year.
"Competitive Activity" will not include (i) the mere ownership of
securities in any such enterprise and the exercise of rights appurtenant
thereto or (ii) participation in the management of any such enterprise
other than in connection with the competitive operations of such
enterprise.
(e) "Employee Benefits" means the perquisites, benefits and service
credit for benefits as provided under any and all employee retirement
income and welfare benefit policies, plans, programs or arrangements in
which Executive is entitled to participate, including without limitation
any stock option, stock purchase, stock appreciation, savings, pension,
supplemental executive retirement, or other retirement income or welfare
benefit, deferred compensation, incentive compensation, group or other
life, health, medical/hospital or other insurance (whether funded by actual
insurance or self-insured by the Company), disability, salary continuation,
expense reimbursement and other employee benefit policies, plans, programs
or arrangements that may now exist or any equivalent successor policies,
plans, programs or arrangements that may be adopted hereafter by the
Company, providing perquisites, benefits and service credit for benefits at
least as great in the aggregate as are payable thereunder prior to a Change
in Control.
(f) "Incentive Pay" means an annual amount equal to not less than the
highest aggregate annual bonus, incentive or other payments of cash
compensation, in addition to Base Pay, made or to be made in regard to
services rendered in any calendar year during the three calendar years
immediately preceding the year in which the Change in Control occurred
pursuant to any bonus, incentive, profit-sharing, performance,
discretionary pay or similar agreement, policy, plan, program or
arrangement (whether or not funded) of the Company, or any successor
thereto providing benefits at least as great as the benefits payable
thereunder prior to a Change in Control.
(g) "Severance Period" means the period of time commencing on the date
of the first occurrence of a Change in Control and continuing until the
earliest of (i) the second anniversary of the occurrence of the Change in
Control, (ii) the Executive's death, or (iii) the Executive's attainment of
age 65; provided, however, that commencing on each anniversary of the
Change in Control, the Severance
4
<PAGE> 5
Period will automatically be extended for an additional year unless, not
later than 90 calendar days prior to such anniversary date, either the
Company or the Executive shall have given written notice to the other that
the Severance Period is not to be so extended.
(h) "Term" means the period commencing as of the date hereof and
expiring as of the later of (i) the close of business on June 13, 1999, or
(ii) the expiration of the Severance Period; provided, however, that (A)
commencing on January 1, 1998 and each January 1 thereafter, the term of
this Agreement will automatically be extended for an additional year
unless, not later than September 30 of the immediately preceding year, the
Company or the Executive shall have given notice that it or the Executive,
as the case may be, does not wish to have the Term extended and (B) subject
to the last sentence of Section 8, if, prior to a Change in Control, the
Executive ceases for any reason to be an employee of the Company and any
Subsidiary, thereupon without further action the Term shall be deemed to
have expired and this Agreement will immediately terminate and be of no
further effect. For purposes of this Section 1(h), the Executive shall not
be deemed to have ceased to be an employee of the Company and any
Subsidiary by reason of the transfer of Executive's employment between the
Company and any Subsidiary, or among any Subsidiaries.
2. Operation of Agreement. This Agreement will be effective and binding
immediately upon its execution, but, anything in this Agreement to the contrary
notwithstanding, this Agreement will not be operative unless and until a Change
in Control occurs. Upon the occurrence of a Change in Control at any time during
the Term, without further action, this Agreement shall become immediately
operative.
3. Termination Following a Change in Control. (a) In the event of the
occurrence of a Change in Control, the Executive's employment may be terminated
by the Company during the Severance Period and the Executive shall be entitled
to the benefits provided by Section 4 unless such termination is the result of
the occurrence of one or more of the following events:
(i) The Executive's death;
(ii) If the Executive becomes permanently disabled within the
meaning of, and begins actually to receive disability benefits pursuant to,
the long-term disability plan in effect for, or applicable to, Executive
immediately prior to the Change in Control; or
(iii) Cause.
If, during the Severance Period, the Executive's employment is terminated by the
Company or any Subsidiary other than pursuant to
5
<PAGE> 6
Section 3(a)(i), 3(a)(ii) or 3(a)(iii), the Executive will be entitled to the
benefits provided by Section 4 hereof.
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and any Subsidiary during
the Severance Period with the right to severance compensation as provided in
Section 4 upon the occurrence of one or more of the following events (regardless
of whether any other reason, other than Cause as hereinabove provided, for such
termination exists or has occurred, including without limitation other
employment):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially equivalent
office or position, of or with the Company and/or a Subsidiary, as the case
may be, which the Executive held immediately prior to a Change in Control,
or the removal of the Executive as a Director of the Company (or any
successor thereto) if the Executive shall have been a Director of the
Company immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the nature or scope of
the authorities, powers, functions, responsibilities or duties attached to
the position with the Company and any Subsidiary which the Executive held
immediately prior to the Change in Control, (B) a reduction in the
aggregate of the Executive's Base Pay and Incentive Pay received from the
Company and any Subsidiary, or (C) the termination or denial of the
Executive's rights to Employee Benefits or a reduction in the scope or
value thereof, any of which is not remedied by the Company within 10
calendar days after receipt by the Company of written notice from the
Executive of such change, reduction or termination, as the case may be;
(iii) A determination by the Executive (which determination will be
conclusive and binding upon the parties hereto provided it has been made in
good faith and in all events will be presumed to have been made in good
faith unless otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred following a Change in
Control, including, without limitation, a change in the scope of the
business or other activities for which the Executive was responsible
immediately prior to the Change in Control, which has rendered the
Executive substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused Executive to suffer a substantial
reduction in, any of the authorities, powers, functions, responsibilities
or duties attached to the position held by the Executive immediately prior
to the Change in Control, which situation is not remedied within 10
calendar days after written notice to the Company from the Executive of
such determination;
6
<PAGE> 7
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all of
its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer or otherwise)
to which all or substantially all of its business and/or assets have been
transferred (directly or by operation of law) assumed all duties and
obligations of the Company under this Agreement pursuant to Section 10(a);
(v) The Company relocates its principal executive offices, or
requires the Executive to have his principal location of work changed, to
any location which is in excess of 25 miles from the location thereof
immediately prior to the Change in Control, or requires the Executive to
travel away from his office in the course of discharging his
responsibilities or duties hereunder at least 20% more (in terms of
aggregate days in any calendar year or in any calendar quarter when
annualized for purposes of comparison to any prior year) than was required
of Executive in any of the three full years immediately prior to the Change
in Control without, in either case, his prior written consent; or
(vi) Without limiting the generality or effect of the foregoing,
any material breach of this Agreement by the Company or any successor
thereto.
(c) A termination by the Company pursuant to Section 3(a) or by the
Executive pursuant to Section 3(b) will not affect any rights that the Executive
may have pursuant to any agreement, policy, plan, program or arrangement of the
Company providing Employee Benefits, which rights shall be governed by the terms
thereof.
4. Severance Compensation. (a) If, following the occurrence of a Change
in Control, the Company terminates the Executive's employment during the
Severance Period other than pursuant to Section 3(a) or if the Executive
terminates his employment pursuant to Section 3(b), the Company will pay to the
Executive the following amounts within five business days after the date (the
"Termination Date") that the Executive's employment is terminated (the effective
date of which shall be the date of termination, or such other date that may be
specified by the Executive if the termination is pursuant to Section 3(b)) and
continue to provide to the Executive the following benefits:
(i) A lump sum payment in an amount equal to two times the sum of
(A) Base Pay (at the highest rate in effect for any period prior to the
Termination Date), plus (B) Incentive Pay (determined in accordance with
the standards set forth in Section 1(f)).
(ii) For a period of 24 months following the Termination Date (the
"Continuation Period"), the Company will arrange to
7
<PAGE> 8
provide the Executive with Employee Benefits that are welfare benefits (but
not stock option, stock purchase, stock appreciation or similar
compensatory benefits) substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination
Date (or, if greater, immediately prior to the reduction, termination, or
denial described in Section 3(b)(ii)). If and to the extent that any
benefit described in this Section 4(a)(ii) is not or cannot be paid or
provided under any policy, plan, program or arrangement of the Company or
any Subsidiary, as the case may be, then the Company will itself pay or
provide for the payment to the Executive, his dependents and beneficiaries,
of such Employee Benefits. Without otherwise limiting the purposes or
effect of Section 5, Employee Benefits otherwise receivable by the
Executive pursuant to this Section 4(a)(ii) will be reduced to the extent
comparable welfare benefits are actually received by the Executive from
another employer during the Continuation Period following the Executive's
Termination Date, and any such benefits actually received by the Executive
shall be reported by the Executive to the Company.
(b) Without limiting the rights of the Executive at law or in equity,
if the Company fails to make any payment or provide any benefit required to be
made or provided hereunder on a timely basis, the Company will pay interest on
the amount or value thereof at an annualized rate of interest equal to the
so-called composite "prime rate" as quoted from time to time during the relevant
period in the Northeast Edition of The Wall Street Journal. Such interest will
be payable as it accrues on demand. Any change in such prime rate will be
effective on and as of the date of such change.
(c) Notwithstanding any provision of this Agreement to the contrary,
the parties' respective rights and obligations under this Section 4 and under
Section 7 will survive any termination or expiration of this Agreement or the
termination of the Executive's employment following a Change in Control for any
reason whatsoever.
5. Limitation on Payments and Benefits. Notwithstanding any provision
of this Agreement to the contrary, if any amount or benefit to be paid or
provided under this Agreement would be an "Excess Parachute Payment," within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), or any successor provision thereto, but for the application of this
sentence, then the payments and benefits to be paid or provided under this
Agreement shall be reduced to the minimum extent necessary (but in no event to
less than zero) so that no portion of any such payment or benefit, as so
reduced, constitutes an Excess Parachute Payment; provided, however, that the
foregoing reduction shall be made only if and to the extent that such reduction
would result in an increase in the aggregate payment and benefits to be
provided, determined on an after-tax basis (taking into account the excise tax
imposed pursuant to
8
<PAGE> 9
Section 4999 of the Code, or any successor provision thereto, any tax imposed by
any comparable provision of state law, and any applicable federal, state and
local income taxes). The determination of whether any reduction in such payments
or benefits to be provided under this Agreement or otherwise is required
pursuant to the preceding sentence shall be made at the expense of the Company,
if requested by the Executive or the Company, by the Company's independent
accountants. The fact that the Executive's right to payments or benefits may be
reduced by reason of the limitations contained in this Section 5 shall not of
itself limit or otherwise affect any other rights of the Executive other than
pursuant to this Agreement. In the event that any payment or benefit intended to
be provided under this Agreement or otherwise is required to be reduced pursuant
to this Section 5, the Executive shall be entitled to designate the payments
and/or benefits to be so reduced in order to give effect to this Section 5. The
Company shall provide the Executive with all information reasonably requested by
the Executive to permit the Executive to make such designation. In the event
that the Executive fails to make such designation within 10 business days of the
Termination Date, the Company may effect such reduction in any manner it deems
appropriate.
6. No Mitigation Obligation. The Company hereby acknowledges that it
will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of the Executive hereunder or otherwise, except as expressly provided
in the last sentence of Section 4(a)(ii).
7. Legal Fees and Expenses. It is the intent of the Company that the
Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive that
the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Executive the benefits provided or intended to be provided to
the Executive hereunder, the Company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
Company as hereafter provided, to advise and represent the Executive in
9
<PAGE> 10
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
shall exist between the Executive and such counsel. Without respect to whether
the Executive prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all attorneys' and related fees and expenses incurred by the Executive in
connection with any of the foregoing.
8. Employment Rights. Nothing expressed or implied in this Agreement
will create any right or duty on the part of the Company or the Executive to
have the Executive remain in the employment of the Company or any Subsidiary
prior to or following any Change in Control. Any termination of employment of
the Executive or the removal of the Executive from the office or position in the
Company or any Subsidiary following the commencement of any discussion with a
third person that ultimately results in a Change in Control shall be deemed to
be a termination or removal of the Executive after a Change in Control for
purposes of this Agreement.
9. Withholding of Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government regulation or
ruling.
10. Successors and Binding Agreement. (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent the Company would be required to perform if no
such succession had taken place. This Agreement will be binding upon and inure
to the benefit of the Company and any successor to the Company, including
without limitation any persons acquiring directly or indirectly all or
substantially all of the business or assets of the Company whether by purchase,
merger, consolidation, reorganization or otherwise (and such successor shall
thereafter be deemed the "Company" for the purposes of this Agreement), but will
not otherwise be assignable, transferable or delegable by the Company.
(b) This Agreement will inure to the benefit of and be enforceable by
the Executive's personal or legal representatives,
10
<PAGE> 11
executors, administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in Sections 10(a) and 10(b). Without limiting the generality or effect
of the foregoing, the Executive's right to receive payments hereunder will not
be assignable, transferable or delegable, whether by pledge, creation of a
security interest, or otherwise, other than by a transfer by Executive's will or
by the laws of descent and distribution and, in the event of any attempted
assignment or transfer contrary to this Section 10(c), the Company shall have no
liability to pay any amount so attempted to be assigned, transferred or
delegated.
11. Notices. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as Federal
Express, UPS, or Purolator, addressed to the Company (to the attention of the
Secretary of the Company) at its principal executive office and to the Executive
at his principal residence, or to such other address as any party may have
furnished to the other in writing and in accordance herewith, except that
notices of changes of address shall be effective only upon receipt.
12. Governing Law. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of New York, without giving effect to the
principles of conflict of laws of such State.
13. Validity. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
14. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
11
<PAGE> 12
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
GENOVESE DRUG STORES, INC.
By: _______________________________
Name:
Title:
_______________________________
12
<PAGE> 1
EXHIBIT 10.8
FIRST AMENDMENT TO THE
GENOVESE DRUG STORES, INC. RETIREMENT INCOME PLAN
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1989)
Section 1.2 of the Genovese Drug Stores, Inc. Retirement Income Plan (As amended
and restated effective January 1, 1989) (the "Plan") is hereby amended,
effective July 1, 1995, to read as follows:
"1.2 `ACTUARIAL EQUIVALENT' means, unless otherwise specified herein, or in any
other provision of the Plan, a benefit of equivalent value, determined by using
a 6% annual interest rate and the 1971 Group Annuity UP84 Mortality Table,
projected to 1975 and set back two years for males and females.
Notwithstanding the foregoing, the determination of the Actuarial Equivalent of
a Participant's vested Retirement Benefit under the mandatory cash out
provisions of Section 5.6 or the plan termination provisions of Section 11.4(c)
shall be made by using the following actuarial assumptions:
(a) for distributions to be made before July 1, 1995, the mortality
assumption described above, and an interest rate equal to (1) the applicable
interest rate, if the amount (using such rate) is $25,000 or less, or (2) 120%
of the applicable interest rate, if the amount exceeds $25,000 (as determined
under (1) above). The "applicable interest rate" shall mean the interest rate or
rates which would be used by the PBGC as of the first day of the month in which
a distribution commences, for purposes of determining the present value of
Participants' benefits under the Plan if the Plan had terminated on the date
distribution commences with insufficient assets to provide benefits guaranteed
by the PBGC on that date (disregarding, with respect to distributions made on or
after January 1, 1995 and before July 1, 1995, any changes in applicable PBGC
regulations made after September 1, 1993): and
(b) for distributions to be made on or after July 1, 1995, (1) the
mortality table prescribed by the Secretary of the Treasury of the United States
pursuant to Code Section 417(e)(3)(A)(ii)(I), as set forth in Revenue Ruling
95-6, or any subsequent ruling, regulation or pronouncement of the
<PAGE> 2
IRS, and (2) an interest rate equal to the annual rate of interest on 30-year
Treasury securities for the month before the date of distribution"
IN WITNESS WHEREOF, the Company has caused this Amendment to be
executed by a duly authorized officer on this 12th day of June, 1995.
GENOVESE DRUG STORES, INC.
ATTEST:
/s/ Alison L Dowling by: /s/ Gene Wexler
- -------------------- ---------------------------------------
Title: Gene Wexler
Vice President & General Counsel
<PAGE> 1
Exhibit 10.9
SPLIT DOLLAR INSURANCE PLAN
Sole Ownership System
SUMMARY PLAN DESCRIPTION
Company - Name: GENOVESE DRUG STORES, INC.
- Address: 80 MARCUS DRIVE
MELVILLE, NY 11747
Name of Plan: Split Dollar Insurance Plan
Name of Insured: LEONARD & GERALDINE GENOVESE
Policy - Insurers: PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
Policy No: 2 672 678 Face Amount : $3,000,000
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
Policy No. 80 111 909 Face Amount: $3,000,000
Name of Owner: GERALD GENOVESE TRUSTEE UNDER
IRREVOCABLE TRUST DATED AUGUST 10, 1992.
Premium Split - Owner : Portion equal to the current term rate for the Insured's
age multiplied by the excess of the current death
benefit over the Company's current premium Advance.
- Company: The balance.
Proceeds Split - Owner's Beneficiary: The balance
- Company: An amount equal to the return of its premium share.
Termination of Plan - First to occur of:
- Surrender of Policy by Owner
- Delivery of written notice by Owner to the Company
Named Fiduciary: Secretary of the Company -
Claims Manager: Secretary of the Company -
Address:
Telephone:
** A COPY OF THE FULL TEXT OF THE PLAN IS ANNEXED HERETO **
-1-
<PAGE> 2
THIS PLAN is adopted by agreement between the Company and the Owner:
DEFINITIONS:
A. "Company" : GENOVESE DRUG STORES, INC.
B. "Insureds": LEONARD & GERALDINE GENOVESE
C. "Insurers": PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
D. "Owner": GERALD GENOVESE TRUSTEE UNDER IRREVOCABLE TRUST DATED
08/10/92
E. "Policy": The policy of the insurance on the life of the Insured
issued by the Insurer and listed on Exhibit "A" annexed
hereto together with any supplementary contracts issued by
the Insurer to conjunction therewith.
F. "Premium Advance": The Company's Premium Advance shall be an amount
equal to the cumulative total of its share of premiums paid on the
Policy.
RECITALS:
A. The Owner is the owner of the Policy, and the Insured is a valuable
employee of the Company. The Company wishes to continue this employment
relationship and, as an inducement thereto, is willing to assist the
Owner in the payment of premiums on the Policy as an additional form of
compensation to Insured as its employee.
B. In exchange for such premium assistance, the Owner is willing to return
to the Company its premium Advance as provided herein.
C. This Plan is intended to qualify as a life insurance employee benefit
plan as described in Revenue Ruling 64-328.
THEREFORE, for value received, it is agreed:
1. Premium Payments
1.01 - Each annual premium on the policy shall be paid as follows:
(a) The owner shall pay a portion of each premium equal to the
current term rate for the Insured's age multiplied by the
excess of the current death benefit over the Company's
Premium Advance. Here, the "current term rate" shall mean
the lesser of the Insurer's rates for individual one-year
term life insurance available to all standard risks or the
rates specified in Revenue Rulings 64-328 and 66-110.
-2-
<PAGE> 3
(b) The company shall pay all premium amounts not paid by the
Owner.
1.02 - The Owner's premium share the Company's premium share shall be
remitted to the Insurer before expiration of the grace period
(except premiums paid with policy loan).
1.03 - Dividends on the Policy, shall be applied as elected by the
Owner.
1.04 - The policy may, at the Owner's discretion, provide for the
waiver of premium on the Insured's disability. If it does so
provide, the cost thereof shall be borne by the Owner, the prior
provisions of this Section 1 to the contrary notwithstanding.
2. Rights of Parties
2.01 - The owner shall be sole and exclusive owner of the Policy. This
includes all the rights of "Owner" under the terms of the Policy
including, but not limited to, the right to designate
beneficiaries, select settlement and dividend options, borrow on
the security of the Policy, and to surrender the Policy. All
such rights may be exercised by the Owner without the Company's
consent.
2.02 - In exchange for the Company's payment of its premium
contribution under Section 1, the Owner agrees to return to the
Company the amount of its Premium Advance on the Insured's
death. Provided, that nothing herein shall give the Company any
interest in any of the assets of the Owner, including but not
limited to, the Policy.
3. The Owner - The Owner shall have the right to assign any part of all of
the Owner's interest in the Policy and this Plan to any person, entity or
trust by execution of a written assignment delivered to the Insurer.
4. Termination of Plan
4.01 - This Plan shall terminate on the first to occur of the
following:
(a) Surrender of the Policy by the Owner, who has the sole and
exclusive right to surrender.
(b) Delivery by the Owner of written notices of termination to
the Company.
4.02 - On any termination of the Plan, one of the following actions
shall be taken, the selection to be by the Owner:
(a) Surrender the Policy, in which event the Owner shall return
to the Company an amount equal to the lesser of:
-3-
<PAGE> 4
(1) The company's premium Advance; or
(2) The policy's cash surrender value
(b) Retain part or all of the Policy, in which event the Owner
shall return to the Company an amount equal to the Company's
Premium Advance.
Provided, that nothing herein shall give the Company any
interest in any of the assets of the Owner, including but
not limited to, the Policy.
5. The Insurer - The insurer shall be bound only by the provisions and
endorsement on the Policy, and any payments made or actions taken by it
ion accordance therewith shall fully discharge it from all claims, suits
and demands of all persons whatsoever. It shall in no way bound by or be
deemed to have notice of the provisions of this Plan.
6. Special Provisions - The following provisions are part of the Plan and are
intended to meet the requirements of the Employee Retirement Income
Security Act of 1974:
6.01 - The named fiduciary : The Secretary of the Company.
6.02 - The funding policy under this Plan is that all premiums on the
Policy be remitted to the Insurer when due.
6.03 - Direct payment by the insurer is the basis of payment of
benefits under this Plan, with those benefits in turn being
based on the payment of premiums as provided in the Plan.
6.04 - For claims procedure purposes, the "Claims Manager" shall be
the Secretary of the Company
(a) If for any reason a claim for benefits under this Plan is
denied by the Company, the Claim Manager shall deliver to
the claimant a written explanation setting forth the
specific reasons for the denial, pertinent references to the
Plan section on which the denial is based, such other data
as may be pertinent information on the procedures to be
followed by the claimant in obtaining a review of his claim,
all written in a manner calculated to be understood by the
claimant. For the purpose:
(1) The claimant's claim shall be deemed filed when
presented orally or in writing to the Claims Manager.
(2) The Claim's Manager explanation shall in writing
delivered to the claimant within 90 days of the date the
claim is filed.
(b) The claimant shall have 60 days following his receipt of the
denial of the claim to file with the Claims Manager a
written request for review of the denial. For such review,
the claimant or his representative may submit pertinent
documents and written issues and comments.
-4-
<PAGE> 5
(c) The Claims Manager shall decide the issue on review and
furnish the claimant with a copy within 60 days receipt of
the claimant's request for review of his claim. The decision
on review shall be written and shall include specific
reasons for the decision written in a manner calculated to
be understood by the claimant, as well as specific
references to the pertinent Plan provisions on which the
decision is based. If a copy of the decision is not so
furnished to the claimant within 60 days, the claim shall be
deemed denied on review.
7. Amendment - This plan may be amended at any time and from time to time to
time by the mutual written consent of the owner and the Company.
IN WITNESS WHEREOF the parties have signed this Plan this 29th day of
June, 1995.
GENOVESE DRUG STORES INC.
BY /s/ GENE WEXLER
----------------------------------------------------
Title Gene Wexler - Vice President & General Counsel
/s/ GERALD GENOVESE
-------------------------
GERALD GENOVESE - Trustee
-5-
<PAGE> 6
SCHEDULE "A"
LIFE INSURANCE
<TABLE>
<CAPTION>
POLICY NUMBER FACE AMOUNT
- ------------- -----------
<S> <C> <C>
2 672 678 PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY $3,000,000
80 111 909 JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY $3,000,000
</TABLE>
-6-
<PAGE> 1
PART IV
Exhibit 11
COMPUTATION OF NET INCOME PER COMMON SHARE
GENOVESE DRUG STORES, INC.
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------
February 2, February 3, January 28,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Primary:
Weighted average shares
outstanding (A) 11,086,000 11,059,000 11,049,000
Equivalent shares--dilutive
stock options--based on
Treasury stock method using
average market price (B) (B) (B)
----------- ----------- -----------
11,086,000 11,059,000 11,049,000
----------- ----------- -----------
Net income $ 7,607,000 $ 9,212,000 $ 8,306,000
----------- ----------- -----------
Net income per common share (A) $ .69 $ .83 $ .75
=========== =========== ===========
</TABLE>
(A) Adjusted, where appropriate, to reflect the effect of the 10 percent stock
dividends distributed in fiscal 1994, fiscal 1995 and fiscal 1996.
(B) The effect of equivalent shares of dilutive stock options is not significant
to net income per common share.
There is no significant difference between primary and fully diluted net income
per common share.
<PAGE> 1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Percentage of
Securities
Name State of Incorporation Owned
---- ---------------------- --------------
<S> <C> <C>
GenPlus Managed Care, Inc. Delaware 100%
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Genovese Drug Store, Inc.:
We consent to the incorporation by reference in the Registration Statement on
Forms S-8 for the 1984 Employee Stock Option and Appreciation Rights Plan and
the 1987 Executive Bonus and Stock Plan of our report dated March 5, 1996
appearing in this Annual Report on Form 10-K of Genovese Drug Stores, Inc. for
the year ended February 2, 1996.
/s/ DELOITTE & TOUCHE LLP
Jericho, New York
April 22, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-02-1996
<PERIOD-START> FEB-04-1995
<PERIOD-END> FEB-02-1996
<CASH> 2,251
<SECURITIES> 0
<RECEIVABLES> 14,396
<ALLOWANCES> 0
<INVENTORY> 104,855
<CURRENT-ASSETS> 126,591
<PP&E> 131,329
<DEPRECIATION> 59,692
<TOTAL-ASSETS> 204,041
<CURRENT-LIABILITIES> 85,699
<BONDS> 41,455
0
0
<COMMON> 11,237
<OTHER-SE> 58,431
<TOTAL-LIABILITY-AND-EQUITY> 204,041
<SALES> 612,279
<TOTAL-REVENUES> 612,279
<CGS> 430,505
<TOTAL-COSTS> 430,505
<OTHER-EXPENSES> 165,491
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,876
<INCOME-PRETAX> 13,707
<INCOME-TAX> 6,100
<INCOME-CONTINUING> 7,607
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,607
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
